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Nancy Starczyk:FICO reduces impact of medical debt

Posted: September 3, 2014 2:00 a.m.
Updated: September 3, 2014 2:00 a.m.

 

Until earlier this month, an individual could have a decades-long flawless credit history and debt repayment record, but due to an outstanding major medical bill would be unable to obtain a loan to buy a home because that one medical crisis shredded their credit score.

But as of Aug. 7 at least one agency has taken steps to ease that burden in a decision that could see a 25-point increase in an individual’s credit score.

The Fair Isaac Corporation, known as FICO, introduced what they called “a more nuanced way to assess consumer collection information” that offers a sophisticated treatment designed to differentiate medical from non-medical collection agency accounts.

This will help ensure that medical collections have a lower impact on the score, commensurate with the credit risk they represent.

These enhancements also help lenders because they result in greater precision.

At the same time, the median FICO Score for consumers whose only major derogatory references are unpaid medical debts is expected to increase by 25 points.

The decision was praised by Realtors nationwide.

Realtors welcome the announcement from Fair Isaac Corp. that it will no longer penalize borrowers for certain debt-collection activities when calculating credit scores, the National Association of Realtors announced.

“This move ultimately will make a real difference in the lives of millions of Americans, who have been shut out of the housing market or forced to pay higher mortgage interest rates because of flawed credit scores,” said Steve Brown, NAR president. “Since the housing crash, overly restrictive lending has been the greatest obstacle to homeownership.”

Realtors will continue to support efforts to broaden access to credit for qualified homebuyers.

Nancy Starczyk is President of the Santa Clarita Valley Division of the Southland Regional Association of Realtors. David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.

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