Healthier credit scores are in store for people who have outstanding medical debt. Leading personal credit score provider FICO announced it will leave out or discount medical debt from its scores with a new formula called FICO Score 9. This is great news for Americans who have been struggling to pay their outstanding medical bills and, as a result, have seen their credit scores decline. FICO’s revised scoring model will also help lenders evaluate risk like never before. Here at Balboa Capital, we think this latest news from FICO is very important because the new credit scoring criteria can help consumers and small business owners secure credit and alternative financing products such as an equipment lease or working capital loan.
More about FICO’s Latest Decision
Medical conditions can occur without warning and result in costly medical bills. Visits to the doctor’s office, specialized medical exams, medications, subspecialty care and surgery can all add up, even with medical insurance. FICO understands that healthcare bills can be a tremendous financial burden, and they are providing consumers with welcome relief. With FICO Score 9, medical debt will have far less of an impact on credit scores. A FICO spokesman said that credit scores should increase 25 points for people who are struggling with medical debt but have a good credit standing. In addition to improving the credit scores of people with medical debt, FICO Score 9 will positively impact the credit scores of people who pay off medical debt that is currently in collection.
What is a FICO Score?
A FICO score is a personal credit report that is calculated by five specific categories: Payment history, amount of money owed, length of credit history, new credit, and types of credit used. The impact of each category on a FICO score will be determined by specific variables, such as the number of years you have been using credit. FICO scores range from 300 to 850. A higher score gives consumers and business owners a better chance of securing credit or loans because it equates to less credit risk.
On-Time Payments are Key
When you get a new credit card or buy a house or automobile, your personal credit score will be greatly impacted. If you make your payments on time, your credit score will improve. If you make late payments, your score will drop and you may start getting phone calls from collection agencies. A bankruptcy can also wreak havoc on your FICO score.
The revised FICO scoring system is expected to launch in the fourth quarter of 2014. Balboa Capital will provide our equipment financing blog readers with an update when it is made available.