A small change in how the credit score is calculated by FICO will make it much easier for millions of Americans to obtain easy loans.
FICO score calculations will stop including any record of the consumer failing to pay a bill if the bill has been paid or settled with a collection agency. FICO will also give less priority to unpaid medical bills that are with a collection agency.
The latest move follows months of intense deliberations with different lenders and the Consumer Financial Protection Bureau. The step was aimed at boosting lending without creating extra credit risk. Right since the recession most lenders have become very fastidious in ensuring that loans are given to persons with the best credit report. Usually persons with no blemishes on their credit report could easily avail the loans.
The latest changes are expected to increase consumer lending among a vast section of consumers who are denied loans or have to pay high interest for the loans because of their low credit scores.
Nessa Feddis, senior vice president of consumer protection and payments at the American Bankers Association, a trade group said It expands banks’ ability to make loans for people who might not have qualified and to offer a lower price [for others],”
Till July over 64.3 million consumers in the US had some pending medical bills on their credit report. Of the 106.5 million consumers with a collection on their report, 9.4 million did not have any pending bills and would not be penalized under the new credit score system.
The loosening of the standards has also attracted flak from experts who felt that it will lead to losses for borrowers as well as lenders. Experts say that people who are in debt just cannot handle credit and the latest steps are not helping in any way the debtors who will be falling deeper into the debt trap.
There are many types of debts and this includes credit cards which can be discharged in bankruptcy. If the debtors are unable to pay they can file for bankruptcy and could cause losses to the lenders.