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Can Recent FICO Changes Help Home Buyers?

January 15th, 2015 10:27 AM by Jackie A. Graves


Halfway through 2014, FICO rolled out a new model of its credit-scoring system. The new model, which relaxes old system scorings surrounding certain debts, is predicted to give a slight boost to many credit scores.

That sounds like good news for home buyers in need of a credit bump. But just how much, if any, of an immediate impact will the new model have?

What does the new model do? 

In a nutshell, the new FICO model does two main things to help buyers:

  1. It weighs medical debts less.

  2. It does not count paid collections against you.


    Previous versions weighed medical debt heavily and also weighed paid collections on par with unpaid collections. The new model can give people with these kinds of debts a bump to their credit score, which can earn buyers better rates. The median credit increase for affected consumers is predicted to be 25 points.

    That is, if lenders adopt it.

    Picking a score 

    If you didn’t already know, FICO has several different credit-scoring models, not just one. Lenders pick a FICO model and use it to evaluate your credit. (Some lenders may use a Vantage score, the other type of credit-scoring system, but FICO is the most popular.)

    “There is no mandate for what specific model a lender must use, whether in mortgage lending or other types of lending,” said Rod Griffin, director of public education at Experian.

    There’s no guarantee the new version will be used by your lender, even if it improves your credit score.

    Slow adoption

    Since the latest model, known as FICO 9, is still new, don’t expect lenders to already be using it. Griffin said it “can take months or years for a new credit-scoring model to be widely adopted.”

    This is because lenders will compare and test the new model against their current adopted model and try to gauge how predicative of risk it is, Griffin said. Furthermore, if lenders decide to adopt the new scoring model, it doesn’t happen overnight. Lenders have to undergo a complex process of installing it in their underwriting process.

    “That validation and implementation process can take quite a long time,” he said.

    In other words, don’t expect this new FICO model to have an immediate impact on your purchasing power. There’s no rush for lenders to switch to the new model. Many are still using, and may continue to use, older models such as FICO 4 or FICO 8 for qualification purposes.

    So, will it help me get a house? 

    Maybe. If you have a chunk of medical debt and your credit report has been blistered by paid collections, and you can find a lender who uses FICO 9, you can probably get better rates, or even break the qualifying line in extreme cases. Unfortunately, finding a lender who uses FICO 9 may take so long, your dream house could run the risk of falling off the market.

    It’s not a fix-all for people with bad credit, or any kind of boost for those without medical bills or paid collections.

    “Historically, people have not seen tremendous improvement in their individual credit scores as models change, and I’m confident that for the vast majority of people, that will hold true in this case,” Griffin said.

    As always, the best way to get good credit is still to manage your finances, deal responsibly with your debts and pay your bills on time. And that’s the best way to get a good mortgage rate.

    By: Craig Donofrio | To view the original article click here

Posted by Jackie A. Graves on January 15th, 2015 10:27 AM


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