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New Changes to the FICO Credit Score Formula

Written by:

AmONE

Edited by:

Kristin Marino

Updated on June 19, 2023

Great News! Your FICO credit score may have improved recently or it may improve soon.

This could be a much needed break for people who are having trouble getting a loan due to a poor credit score. Your FICO credit score is the score most lenders use when determining whether or not to approve you for a loan. Recent FICO credit score changes made to the formula may cause your score to go up on its own. FICO scores range from 300 to 850 and are one of the biggest factors used in making loan approval decisions. Having a higher credit score for loan approval could mean lower interest rates and a higher approval rating when it comes time to buy a new car, a home, or apply for an unsecured loan.

What changes should I be aware of?

The two biggest FICO credit score changes will be: (1) Unpaid medical bills that have been sent to a collection agency will have a reduced impact on your score and (2) If you paid a bill late but since have settled the debt with a collection agency, FICO will no longer let that debt affect your credit score.

Another smaller change to the FICO formula will affect people who have minimal credit history. With the new formula, less weight will be given to the amount of credit you have, which means younger applicants will have a better chance at getting approved after the formula change takes effect.

The reasoning behind the formula change is that these issues alone are not likely to cause an increase in risk for non-payment. Credit bureaus understand that medical bills, in most cases, aren’t paid by the individual and usually involve a discrepancy with that person’s insurance company.

When will these changes take effect?

While changes are expected to go into effect as early as this month, some say it could take up to a year for consumers to see changes in their credit score. FICO 9, as it’s been called, was adopted by Equifax® earlier this month. They are the first of the 3 major credit bureaus to use the new formula. Experian® and TransUnion® are expected to follow suit later this year. This new formula should benefit people seeking a mortgage. However, Fannie Mae and Freddie Mac (two of the largest lenders in the housing industry) have yet to announce adopting the new FICO formula. Until this happens the effects on the housing market will be minimal. Builders and real estate agents still complain that lenders are too tight when it comes to approving new mortgages, and this continues to weigh heavily on the housing market.

[Photo Credit: Flickr]

These changes will also make lenders more likely to approve those seeking unsecured personal loans . Separating medical bills and isolated late payments that have been resolved from your credit score could mean an increase of up to 25 points in select cases, which could easily be the difference between being approved for a loan and being denied. A higher FICO score could also mean better interest rates on unsecured loans which makes them a great option for many people looking to consolidate debt.

Regardless of your current credit situation, if you’re in the market for a personal or business loan, make sure you speak with a loan matching expert at AmONE. AmONE is a free loan matching service, dedicated to helping people in all credit situations find the best loan possible.

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