Big changes coming to credit scoring (that will affect millions credit scores)

[Oldgamer]

Link to CNBC News article

Changes are coming to the FICO credit-scoring system, potentially allowing millions of people to take out loans.

The Wall Street Journal reported that Fair Isaac, which produces the FICO score, will no longer include failures to pay bills when calculating a score if the issue has since been resolved. The tabulation also will take unpaid medical bills less into account, according to the Journal.

These changes—which are meant to stimulate consumer lending—are the result of discussions between Fair Isaac, the Consumer Financial Protection Bureau, and lenders, the Journal reported.

Read More Credit alert! Unpaid medical bills unfairly hurt scores
Out of the 106.5 million Americans with a payment collection on their report, 9.4 million had no current balance, which means their credit scores will be bolstered by the new system, according to the Journal. Still, not everyone supports the changes.

"A lot of people really just can't handle credit—you're not really helping them by allowing them to dig themselves into debt," Howard Strong, a California lawyer specializing in consumer-protection class-action lawsuits, told the Journal. "It's like a sharp knife—if you don't know how to use it, you can cut yourself."

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I think it is good that they will take medical bill debt into less of account when scoring. That is how it should be. I also think this will encourage people to start paying old debt since now if they do and pay it off it will come off completely from the credit report.

Most people who get into debt generally are not motivated to pay off the debt because they think "whats the use" if it still stays on my credit report. This will give them motivation to pay off accounts now.

 

[rudder]

This won't end well.

 

[Attic]

I can see where being in debt collection could be a vicious cycle.

But we are talking about issues that were created from increasing consumer lending, and now the solution is to ,... increase consumer lending.

Maybe less lending and more empowering with better wages, instead of trying to staple more high interest rate interest to the poor and under privelaged. I bet all the folks who are in debt collections need is more high interest rate loans.... of the 77million current americans in debt collections, i'd wager a thin slice will beneift from this by getting low interest loans and the majority will be "allowed" by this to take out high interest rate loans. Lenders probably licking their chops.

This looks like ways to increase lending to poor creditors to be honest. Anyone can have an excuse for getting in over their heads in debt, some do, some don't. Removing debt collections from reports after they've been paid, I don't agree with. Show the debt as resolved and mark down the score, like they do now. It disappears after 7 years anyway.

I wouldn't be surprised if debt collection lobbyists are behind this, the same guys who buy over due debt for pennies on the dollar and then try and collect at rates well above that. They are the most direct beneficiaries of this. We just found out that 77 MILLION Americans are in collections of one form or another. I'd assume courtesy of the GFC, which means we are 2-6 years in on debt that becomes much less likely to be collected after 4-10 years. That means the folks trying to collect are facign statue of limitations where they will soon have much less leverage to collect overdue and unpaid debt. I bet Debt Collection is behind this.

This policy doesn't really help folks from getting into debt collections, which is where debt help should be applied IMO.

Overdue debt already gets dropped after 7 years from credit reports when it remains unpaid and in collections. Seems like an appropriate time period. If you really wanted to help folks, maybe move this to 5 years. Now with this new policy folks can pay off collections earlier than 7 years and get the 7 year drop benefit earlyer... I guess,... but this only really benefits debt collectors IMO, they now have more leverage after folks in collections.

All in all, looks very stupid. It will boost lending to those with worse credit reports. Whether those folks really deserve bad credit reports is perhaps what this hopes to solve, you wouldn't want an unpaid <100 dollar collection stoping you from buying a home.

 

[MomentsofSanity]

I don't see this having that big an effect. Changing the way FICO is calculated doesn't mean lenders won't still evaluate risk based on history. As long as the information is in your history a lender can still consider it and most likely will.

That and I personally think income limitations will keep people from running out and suddenly trying to score a bunch of new loans. Just my opinion.

 

[highland145]

I don't see this having that big an effect. Changing the way FICO is calculated doesn't mean lenders won't still evaluate risk based on history. As long as the information is in your history a lender can still consider it and most likely will.

This. I ignore medical, cell phone/cable, some credit cards etc. Meaning I look at the report.

A lot of creditors don't. They just look at the score.

I love new bankruptcy discharges if they tried to do the right thing before they got overloaded and filed.

If you really wanted to help folks, maybe move this to 5 years.

For stealing $$ from some company, cash or services? Hell no.

 

[Attic]

For stealing $$ from some company, cash or services? Hell no.

If you consider that stealing (clearly not), that understanding of the model remains with the new ruling as well.

Loan originator already sold debt for pennies on dollar, and consumer will pay at settlement price less than original debt.

 

[compuwiz1]

I, personally, don't think catastrophic medical bills, which one had no control over, belong on a credit report at all. The guy didn't plan to have a massive heart attack and bypass surgery, resulting in thousands of dollars debt he can't pay. Now if someone goes to the dentist and says FU to the bill, well, that's a horse of a different color.

 

[highland145]

If you consider that stealing (clearly not), that understanding of the model remains with the new ruling as well.

Loan originator already sold debt for pennies on dollar, and consumer will pay at settlement price less than original debt.

You borrow $$ or take services and don't pay and that's not stealing?

Edit: See below, post 10.

 

[rommelrommel]

You borrow $$ or take services and don't pay and that's not stealing?

Theft generally requires intent.

 

[highland145]

Theft generally requires intent.

And?


Edit:After reading the thread again, I'm talking about the original debt/service being unpaid. Not the collection agency.

 

[Newell Steamer]

I think credit reports should be even more overbearing and critical in decision making on who to loan money to.

Would a retail store allow a smelly deranged homeless person into their business? No.

I am not sure why and how so many businesses out there lend out money in such a lax manner. They are the professionals - yet, here they are lending out money to people with low scores. And now that score won't reflect the truth about someone inability to pay something back. Lenders don't even look at what is underneath that score to begin with,.. so, this won't end well.

Yes, the main culprit is the person refusing the pay back the money,.. but, as financial/investment/business professional; what the fuck are you doing loaning $500K to someone who makes $35K and has a shitty score?

Then, they run to the government because of their poor business decisions and beg for a bail out. Fuck that. They clearly knew what they were getting into. Just as a customer is expected to pay back what they borrowed the business is expected to operate in an informed and professional manner - it isn't even a two way street; it is a gated walk.

And if a business refuses to operate in such a manner, let them sink.

 

[highland145]

^^^ Agree but it's a number game. What percentage am I going to collect/charge off and am I going to make $$ at the end of the day. If I'm doing it wrong, I deserve to go under.

what the fuck are you doing loaning $500K to someone who makes $35K and has a shitty score?

Sounds like the private student loan industry but they have the government to collect for them.

 

[rommelrommel]

And?


Edit:After reading the thread again, I'm talking about the original debt/service being unpaid. Not the collection agency.

Just because you incurred debt and can't pay it doesn't prove that you had intent to not pay it at the time of incurring the debt.

In most juristictions at best you'd be looking at fraud, assuming that you can prove intent to not pay the debt.

 

[xBiffx]

What could possibly go wrong with relaxing rules to allow for more lending? I can't fathom why anyone would have a problem with this. I can't come up with any examples of how this could turn out poorly.

/s

 

[fskimospy]

What could possibly go wrong with relaxing rules to allow for more lending? I can't fathom why anyone would have a problem with this. I can't come up with any examples of how this could turn out poorly.

/s

They are talking about changes to the system that more accurately gauge risk, which is what credit scores are supposed to be all about. Medical debts can be huge and can arrive without any bad financial choices by the person who is saddled with them. It makes sense to treat them differently than the debt someone took out to buy a new TV.

 

[xBiffx]

They are talking about changes to the system that more accurately gauge risk, which is what credit scores are supposed to be all about. Medical debts can be huge and can arrive without any bad financial choices by the person who is saddled with them. It makes sense to treat them differently than the debt someone took out to buy a new TV.

All medical debts aren't the same (catastrophic vs. voluntary), and this decision doesn't appear to be addressing that fact. In some cases, medical debt is no different than the new TV.

 

[fskimospy]

All medical debts aren't the same (catastrophic vs. voluntary), and this decision doesn't appear to be addressing that fact. In some cases, medical debt is no different than the new TV.

While I agree that all medical debt is not the same, I strongly, strongly suspect that the vast majority of medical debts taken on are not voluntary. Also, the article did not say that all medical debt would be discounted, just that it would be evaluated differently.

 

[highland145]

Just because you incurred debt and can't pay it doesn't prove that you had intent to not pay it at the time of incurring the debt.

In most juristictions at best you'd be looking at fraud, assuming that you can prove intent to not pay the debt.

I say the 1st payment defaults and the bankruptcies before the 1st due date does. Job loss and medical I understand but I'm not talking about those. Also it comes with the territory, dealing with high risk customers.....who get charged high interest rates.

It's absolutely a civil matter, not criminal, but it's still theft. Curious what your opinion would be if you were on the receiving end. You might call it fraud but you'd still be out your $$.

A while back, I took a title on a loan, filled out the DMV form and mailed it in. Standard practice. The guy went to the DMV the same day and got a duplicate title which he used to pawn somewhere else. The duplicate takes precedence over the original so I was S.O.L. Theft.

Had a long term good customer that wrote a check to pay off his loan and re-opened for a larger amount claiming he needed the $$ and to change his due date. The check bounced and I got bankruptcy papers before the 1st due date. Couldn't collect either. Theft.


Theft, fraud, "Oh, I forgot.", whatever it works out. I don't plan on finding a new career.

 

[PricklyPete]

I'm not sure how reducing the prominence of medical debt is going to help. If that is the #1 reason for bankruptcy, wouldn't a creditor be most interested in how bad their medical debt situation is?

 

[fskimospy]

I'm not sure how reducing the prominence of medical debt is going to help. If that is the #1 reason for bankruptcy, wouldn't a creditor be most interested in how bad their medical debt situation is?

Absolutely.

If you look at the details they aren't ignoring medical debt, they are just treating it differently than non-medical debt. Doesn't it make sense that if you're trying to gauge someone's responsibility with credit that debts taken on voluntarily that they were unable to repay would be more serious infractions than debts forced upon them by unfortunate circumstances?

 

[PricklyPete]

Absolutely.



If you look at the details they aren't ignoring medical debt, they are just treating it differently than non-medical debt. Doesn't it make sense that if you're trying to gauge someone's responsibility with credit that debts taken on voluntarily that they were unable to repay would be more serious infractions than debts forced upon them by unfortunate circumstances?

Not if I am lending them money that I hope to get back. If they have a large medical debt, that seems to point to a better chance that they will go bankrupt and I will not get my money back.

I realize their situation sucks, but as a business, I wouldn't want to lend them money.

 

[fskimospy]

Not if I am lending them money that I hope to get back. If they have a large medical debt, that seems to point to a better chance that they will go bankrupt and I will not get my money back.

I realize their situation sucks, but as a business, I wouldn't want to lend them money.

I'm confused, why is this?

A dollar owed in medical debt is no more likely to make you go bankrupt than a dollar owed from another debt. If anything, it's probably less likely. The problem with medical debts is that there tend to be a lot more dollars of debt associated with them than with say, a credit card. So no, a large medical debt does not point to a better chance of someone going bankrupt than an equally large debt of another sort.

It is simply logical to look at debt taken on irresponsibly vs. debts not taken on irresponsibly and weight them differently. It doesn't mean you discount the money owed.

 

[highland145]

I'm confused, why is this?

A dollar owed in medical debt is no more likely to make you go bankrupt than a dollar owed from another debt. If anything, it's probably less likely. The problem with medical debts is that there tend to be a lot more dollars of debt associated with them than with say, a credit card. So no, a large medical debt does not point to a better chance of someone going bankrupt than an equally large debt of another sort.

It is simply logical to look at debt taken on irresponsibly vs. debts not taken on irresponsibly and weight them differently. It doesn't mean you discount the money owed.

Collateral. I'm with Pete. And I would think the constant harassment by collections would/could drive one to BK.

 

[fskimospy]

Collateral. I'm with Pete. And I would think the constant harassment by collections would/could drive one to BK.

Collateral only works for secured debt of which a huge amount of debt, including credit card debt, is not.

I don't know why collections harassment would be more for medical bills than for any other bill of equal size.

 

[xBiffx]

I tend to agree with PricklyPete and highland145.

Unless it becomes illegal for banks to discriminate based on medical condition (assuming they don't qualify for disability), I'm not sure how anyone can be forced to lend to someone who has and might incur a load of medical debt thereby reducing the chance of repaying a loan.

No different than not lending to a compulsive gambler. Could that be considered a medical condition?