New FICO Score 9 should help credit challenged car buyers in a number of ways including assessing certain collection accounts differently
What we see
Here at Auto Credit Express we see that late last week FICO, the company responsible for the FICO credit score, announced a new credit scoring model that will be available this fall, which promises to help many consumers with bad credit, which could make things easier when it comes to auto loans for people with bad credit.
FICO Score 9
Called FICO Score 9, FICO describes the new credit score thusly:
…a more nuanced way to assess consumer collection information, bypassing paid collection agency accounts and offering a sophisticated treatment differentiating 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 help lenders because they result in greater precision.
So how much will FICO 9 help borrowers with credit issues that include unpaid medical bills? According to FICO, "the median FICO Score for consumers whose only major derogatory references are unpaid medical debts is expected to increase by 25 points."
But the new FICO Score goes beyond even that.
Paid Collection Agency Accounts
In the past, there was very little incentive for consumers to pay accounts in collection as, even if they paid them, the accounts remained in credit files for six years from the time they were first reported 90 days past due. According to FICO, the new scoring model will change all that by "bypassing paid collection agency accounts." So even though the paid collections will remain in credit files, the new FICO score will no longer consider them as in collection.
Help is also on the way for consumers with limited credit histories.
Thin Credit Files
Lenders describe someone with a limited credit history as having a "thin credit file." The new FICO Score goes further in trying to assess the credit risk of these consumers. According to FICO, "instead of classifying a consumer as someone who paid or didn't pay her bills in absolute terms, the various degrees of the consumer's payment history have been quantified. The end result is a score with an improved ability to assess the risk of thin files."
In other words, instead of judging someone on whether they did or didn't pay their bills on time, the score will be adjusted not only for the number of times an account was paid late, but also on how many days it was late – with 30-day late payments penalized less than 60 or 90 day delinquencies. This should help people who only made a small misstep with their credit pre-qualify for an auto loan
"FICO Score 9 uses a more refined treatment of consumers with a limited credit history and those with accounts at collection agencies, so that lenders can grow their credit and loan portfolios more confidently," said Jim Wehmann, executive vice president for Scores at FICO. "By applying innovative predictive modeling techniques on recent data to capture consumer credit behavior, FICO Score 9 will extend FICO's leadership in providing the credit score that most accurately and fairly defines U.S. consumer credit risk."
The Bottom Line
The newest FICO score will help borrowers with problem credit improve their qualifications for auto loan in at least three ways. For one, it will lower the impact of unpaid medical collection accounts. Secondly, it will ignore collection accounts that have been paid. Finally, it will more accurately assess consumers with limited credit and checkered payment histories.
Here's another good thing: if you have credit issues keep in mind that Auto Credit Express matches applicants with car credit problems to those dealers that can offer them their best opportunities for approved car loans.
So if you're ready to establish your credit, you can begin now by filling out our online car loans application.