FICO Score 9 – Why Home Buyers Shouldn’t Hold Their Breath

Services for Real Estate Pros with Credit Technologies, Inc.

Much attention has focused on the announcement that FICO is releasing an updated credit scoring model entitled FICO Score 9. This new algorithm which is scheduled to be available in the fall touts 3 primary improvements,

  • Once repaid, debts that went to collection agencies won’t count against a consumer’s FICO score.
  • Medical debts will have a lesser negative impact on consumer scores. The median FICO score for consumers whose only major derogatory references are unpaid medical debts is expected to increase by 25 points.
  • A better technique to determine credit creditworthiness of consumers with little credit history (often referred to as “thin files”.)

Some of these updates are likely the result of a study by the Consumer Financial Protection Bureau suggesting that consumers’ credit scores may be “overly penalized” by medical collections. It states that medical debt is unlike other forms of debt as it is often a result of insurance issues with the consumer often unaware of the debt prior to being contacted by a collection agency.

Sounds great, but here’s the catch for home buyers…

The use of credit scores for mortgage purposes is largely dictated by the GSE’s, Fannie Mae (FNMA) and Freddie MAC (FMAC.) Both entities determine which credit scores are acceptable for use by their respective automated underwriting engines. As a result, virtually all mortgage lenders use only the credit score models accepted by the GSE’s,

Since 2009, the GSE accepted scoring models have been,

Equifax Beacon 5.0

Experian FICO V2

Trans Union FICO Classic 4 (formerly known as Empirica)

At present, neither FNMA nor FMAC have indicated any plans to accept the FICO Score 9 model, rendering it largely useless within the mortgage industry.

A precedent for GSE inaction on credit score updates has already been established. In 2009, FICO released the 08 scoring model which despite similar media attention, was never adopted by FNMA or FMAC.

The media attention given to FICO’s Score 9 model and the failure to explain its likely non-use within the mortgage industry has created confusion for many home buyers and mortgage lenders. The bottom line is that although FICO Score 9 contains enhancements that are seen as positive changes for consumers, they will likely not benefit those looking to purchase a home or refinance an existing loan.


Thomas Conwell
Credit Technologies, Inc.

Comments (1)

Richard Woodward NMLS#217454
Cornerstone First Mortgage, NMLS #173855 - Dallas, TX
Service Beyond Expectations! Your Texas Lender

Good information Thomas.  What would be the best way to get the Consumer Financial Protection Bureau to put pressure on the GSE's to adopt these changes.  Since they are in receivership, it seems to me this adoption would bring them more inline with the direction of the Consumer Financial Protection Bureau

Aug 14, 2014 12:33 AM