AMARILLO, TX (KFDA) - Many people in the Panhandle could soon see an increase in their credit scores.
FICO is the most widely used credit rating system and has recently updated its policies.
The latest adaptation, FICO 9, discounts medical debts and other collection items.
Before this adjustment, the credit scores of more than 64 million Americans were negatively impact by these medical collections.
"A person's credit score, with medical conditions, will increase on average 25 points under the new system," said John T. McElya, the Senior VP of Amarillo National Bank. "That is very significant. It is the difference between a 2.99% interest rate or a 6% interest rate, and on a large purchase that could mean thousands of dollars in savings."
Credit scores are intended to reflect the likelihood of a person repaying a loan.
FICO decided to implement this policy change for several reasons:
- The idea that many people are unaware of unpaid medical claims such as small co-pays or other non-covered items.
- The thought that even the most responsible people can suffer a medical crisis where the cost is out of their control.
- The fact that doctors and hospitals can transfer older payments to collection agencies, causing people who have been paying off old bills to have their credit score lowered.
FICO 9 also discounts other collection items. These include payments such as credit cars, phone bills, school loans, rent, energy bills and other reoccurring payments.
Under the new rating system, paying off old collection will increase a person's credit score.
Improved credit scores gives banks and other institutions more faith in a person allowing them to take out loans at lower interest rates.
FICO 9 came out in 2014, but it takes banks and other entities a few years to adjust to the new system.