New credit scores ease health care bills' effect

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The formula for the most widely used credit score will change this fall.

FICO, which creates the most-used credit scores, said last week its new model is "a more nuanced way to assess consumer collection information." It ignores paid-off accounts and differentiates medical from nonmedical collection accounts.

The effect will be that medical debt turned over to collection agencies will impact FICO's brand of three-digit credit scores less. The company claims 90 percent of U.S. lenders use its score.

The median FICO score for consumers whose only major black credit marks are unpaid medical debts is expected to increase by 25 points, according to FICO.

Credit scores attempt to predict the probability a borrower will pay back a loan and pay bills, such as a wireless phone bill. They are important because consumers with the best credit scores also get the best loan interest rates, on credit cards, mortgages and auto loans, for example. Those with poor scores might not get a loan at all. Credit scores can also affect auto insurance rates.

Credit scores attempt to summarize in a single number information contained in consumer credit reports from credit bureaus. The reports, but not the scores, are available free once a year at annualcreditreport.com.

The new score, FICO Score 9, also attempts to better assess the creditworthiness of consumers with limited credit history, called thin files, FICO said. They might include young people or people who prefer to use cash instead of credit.