Why does FICO keep coming up with new versions of their scoring models when no one in our business is paying attention? Well, there are some very good reasons with the primary one being that medical collection accounts will now have a lower impact on overall scores that more accurately reflect the true credit risk that is being represented. The estimate is that people with medical collections will see an increase of 25 points on all 3 credit bureaus.
The good news? It is expected that consumer lending (credit cards, auto loans, etc...) will become less expensive as that portion of the lending industry adopts these new standards.
However... in the mortgage sector, these new scores are going to have absolutely zero impact in the short term.
I looked at a recent credit report I pulled and sure enough, the FICO score models that I'm having to use are the following:
Equifax - Version 5.0 : Experian - Version 2 : TransUnion - Version Classic 04
All of these FICO score versions are from the time period of 2004 - 2005 which clearly do not reflect how today's consumers are borrowing money. Here's a really good article from the Washington Post:
Washington Post Article - Aug 22, 2014
Here is another link to FICO, which explains their reasoning: FICO 9 Rollout
The goal of updating FICO scores to more accurately reflect today's lending environment and credit risk assessment is a noble one. I hope that Fannie Mae / Freddie Mac / HUD are paying attention.
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