Fair Isaac Corporation
), a leading personal credit score provider, is implementing a new
credit analysis scoring model, which will give less weight to
unpaid medical bills. The new system will improve the credit record
of many borrowers, and will also enhance the risk-assessment
capability of lenders. Investors were neutral to the news as share
price was flat over the subsequent trading session.
The new model, known as FICO Score 9, is supposed to make obtaining
loans easier for consumers who have settled bad debt, or have
overdue medical payments.
The scores of Fair Isaac, a software analytics company, are the
most comprehensively used credit-scoring formula in the U.S.,
influencing lending decisions such as setting interest rates on
home loans or issuing credit cards. The company developed FICO
Score 9 after some of its biggest customers, including major
lending institutions and regulators, reportedly suggested that
overdue medical debt was unduly weighing on consumers' credit
Additionally, a study by the Consumer Financial Protection Bureau,
based on five million anonymous credit records, revealed that
consumers may have been overly penalized for medical debt compared
with other types of debt.
FICO Score 9 employs sophisticated modeling techniques to make the
credit scores more predictive of the consumer's probability of
repaying a debt, compared with the previous versions. The updated
scoring system will attempt to place greater importance on
consumers' more recent behavior.
The scores are based on a 300-850 point scale. After the
implementation of the new scoring model, a consumer's credit score
will be less affected by outstanding medical bills, making it
easier for them to get credit approval. For example, those with a
median score of 711 - and a strong credit history, except for
outstanding medical debts - may see their FICO score increase by 25
points. Consequently, they will be eligible for more favorable
interest rates on various loans, thus generating savings.
Back in Mar 2013, Fair Isaac's major competitor VantageScore
introduced "VantageScore 3.0" that excluded all paid collection
accounts including medical accounts. VantageScore is a joint
venture of three leading credit reporting bureaus, Equifax,
Experian and TransUnion.
Available across all three credit bureaus, Fair Isaac's new scoring
model will attempt to offer a more consistent score over each.
Fair Isaac currently holds a Zacks Rank #3 (Hold). Some
better-ranked stocks in the information technology services
industry include Amdocs Limited (
), Barracuda Networks, Inc. (
) and Infosys Ltd. (
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FAIR ISAAC INC (FICO): Free Stock Analysis
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