FICO is changing the way they calculate your credit score and it may allow millions with bad credit to qualify for loans at lower interest rates. FICO will no longer include failures to pay bills when calculating a score IF the issue has been resolved. They will also take unpaid medical bills less into account. The change called FICO Score 9 is meant to stimulate the economy through increased consumer lending.
FICO scores are the most widely used credit-scoring formula in the U.S. and are taken into account in lending decisions such as issuing credit cards or setting interest rates on home loans.
You won’t see your credit boost overnight. It is estimated that it could take up to a year for lenders to change their systems to evaluate consumers and price loans for them. And it won’t affect consumers currently in loans. So if you have a high interest rate loan you will have to refinance once the changes take effect and lenders start recognizing them.
Out of the 106.5 million Americans with a payment collection on their report, 9.4 million had no current balance, which means their credit scores will be bolstered by the new system, according to the Journal. Still, not everyone supports the changes.