FICO Credit Score Change Will Help Average Americans, Says Strategic Consulting Services
Settling unpaid debt will soon help credit scores, meaning better rates and more loans to borrowers
New York (PRWEB) September 02, 2014
Strategic Consulting Services (http://www.strategiccs.org), a New York firm providing client-focused financial consulting for consumers, announces that consumers should soon feel financial help with a change in how credit scores are calculated. The average credit score has been declining since 2011, often due to growing health care debt, and the change will help average Americans get better rates, qualify for more loans, and save potentially thousands of dollars each year.
After months of critical commentary from the Consumer Financial Protection Bureau (CFPB) about how the financial industry calculates credit scores, Fair Isaac Corporation has announced a change to how its FICO credit score calculates unpaid debt. Used by lenders in 90% of consumer mortgage lending decisions, FICO's credit scoring is the foundation for credit reports provided by the three major U.S. credit bureaus. The change applies specifically to consumers with unpaid bills, causing less negative impact for those who settle the debt with the help of a debt settlement firm or work with a collections agency to make payments.
Under the current process, having an account go to collections has the same negative impact as a foreclosure or bankruptcy. Also under the current process, the credit score for a borrower who settles outstanding debt is treated the same as a borrower who refuses to repay the debt. Now with the change, borrowers have an incentive to settle the debt, as their efforts could l be rewarded with an increase in their credit score. While the change may sound common sense, it is a major victory for consumer advocates and the pocketbook of average Americans. Simply repaying unpaid debt could lift a credit score by 25 points, which means better interest rates that could translate to a homeowner savings of thousands or tens-of-thousands of dollars annually.
“This move 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, President of the National Association of Realtors. “Since the housing crash, overly restrictive lending has been the greatest obstacle to home ownership.” With the change to the FICO credit score, more individuals will qualify for loans while the lending industry will be able to make more accurate lending decisions.
Additionally, as the cost of medical care has grown, so has health care debt or an inability to pay medical debt. Even with insurance, more than 20 percent of Americans aged 19 to 46 will struggle to pay medical bills this year, according to NerdWallet Health. The number one reason for bankruptcy in the U.S. is health care and almost two million consumers will file bankruptcy due to medical bills. Often health care costs are large and unexpected, equaling more than one quarter of a household's annual income. In many cases, individuals are not even aware their insurance hasn't paid a bill until they are called by a collections agency over the outstanding debt. These factors have played a role in collectively dragging down the average U.S. credit score from a peak of 762 in 2011 to 753 in 2013 and 744 in the second quarter of 2014.
“Despite the large reforms to government financial oversight and banking laws, this relatively small change will have a big impact on credit scores for the average American. The change helps banks lend more money without increasing their risk; while it also helps consumers qualify for better loans and suffer less consequence when they have hard times. Americans will be rewarded financially by doing the right thing,” says Ben Kittle, Senior Financial Consultant at Strategic Consulting Services. ”It will take months or even years for all types of lenders to adopt the new policies, however the FICO change will directly help the finances of the average American household.”
About Strategic Consulting Services
Strategic Consulting Services is a financial services firm with teams specialized in Debt Management, Mortgages and Business Services. With a comprehensive client-focused approach, the Company provides assessments looking beyond immediate financial issues to help clients build greater financial strength with smart habits and choices. Since 2007, Strategic Consulting Services has helped individuals and small businesses create savings plans, reduce debt, and make wiser spending choices. For more information visit http://www.strategiccs.org.
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