In summary, the FICO® Score 9 credit scoring model examines medical debt, paid collections, and rental history in a different way than earlier iterations. Here’s why your FICO® Score 9 credit scores could be different. Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect.
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The FICO 9 credit score, introduced in 2017, has become increasingly popular among lenders. However, many individuals have noticed a significant discrepancy between their FICO 9 and FICO 8 scores, with FICO 9 often being considerably lower This can be confusing and frustrating, especially if you’re aiming for a high credit score
Let’s delve into the reasons behind this difference and explore what you can do to understand and potentially improve your FICO 9 score,
Key Differences Between FICO 9 and FICO 8
While both FICO 9 and FICO 8 are widely used credit scoring models, they differ in their methodologies and weighting of various factors. Here are some key differences that contribute to the potential discrepancy between the two scores:
1. Medical Debt: FICO 9 excludes medical debt from your credit score calculation unless it has been sent to collections. This can significantly impact your FICO 9 score if you have any unpaid medical bills, even if they are relatively small.
2. Collections Accounts: FICO 9 incentivizes paying off collections accounts by reducing their impact on your score after six months This means that even if you have collections accounts on your credit report, your FICO 9 score may not be as severely affected as your FICO 8 score
3. Rental History: FICO 9 can incorporate your rental payment history into your score if it is reported by a specialized rent reporting agency. This can be a positive factor for individuals who have a consistent history of on-time rent payments.
4. Credit Utilization: FICO 9 uses a slightly different method for calculating credit utilization, which is the amount of credit you are using compared to your available credit limit. This can result in a small difference in your score compared to FICO 8.
5. New Credit: FICO 9 places less emphasis on new credit accounts, such as recently opened credit cards or loans. This can be beneficial for individuals who are trying to improve their credit score by avoiding opening new accounts.
Understanding Your FICO 9 Score
If you notice a significant difference between your FICO 9 and FICO 8 scores, it’s important to understand the reasons behind it. Here are some steps you can take:
1. Check Your Credit Reports: Obtain copies of your credit reports from all three major credit bureaus (Experian, Equifax, and TransUnion) to review the information they contain. Look for any errors or inaccuracies that might be affecting your score.
2. Analyze Your Credit Utilization: Calculate your credit utilization ratio for each of your credit cards by dividing your current balance by your credit limit. Aim to keep your utilization below 30% to maintain a healthy credit score.
3. Consider Medical Debt: If you have any unpaid medical bills, explore options for resolving them. Paying off these debts or negotiating a payment plan can significantly improve your FICO 9 score.
4. Manage Collections Accounts: If you have collections accounts on your credit report, consider paying them off or disputing them if they are inaccurate. Paying off collections accounts can improve your FICO 9 score after six months, while disputing inaccurate information can remove them from your report entirely.
5. Explore Rent Reporting: If you have a consistent history of on-time rent payments, consider using a rent reporting service to have your payment history included in your credit score. This can potentially boost your FICO 9 score.
While the FICO 9 score may be lower than your FICO 8 score due to its different methodology, it’s important to understand the reasons behind the discrepancy and take steps to improve your score. By addressing factors such as medical debt, collections accounts, and credit utilization, you can work towards a higher FICO 9 score, which can benefit you when applying for loans or credit cards.
Second major change: Paid collections
In the past, even paid debts that were sent to a collections agency, whether they were medical or not, had a negative impact on a consumer’s FICO® credit scores. Therefore, past-due bills that are sent to collections and then fully paid by the customer won’t have a negative effect on FICO® Score 9 credit scores.
This change can benefit consumers in two ways. First, even with debts from unanticipated medical or other financial emergencies on their record, it offers customers the opportunity to improve their FICO® Score 9 credit scores. Furthermore, it serves as a motivator for customers to settle their outstanding debts because it can improve their credit scores when a debt that has been in collections is settled in full.
Third major change: Rental history can be included
When landlords proactively report the payments to one or more credit bureaus, rental history is now taken into account when calculating FICO® Score 9. Before this newest version, rental history was simply not factored into your FICO® credit scores. This change may be most beneficial to consumers who have just started to establish their credit history.
A forewarning regarding this change: Landlords aren’t required to report their tenants’ payment history to the credit bureaus. Before you sign that rental agreement, think about asking your landlord if they intend to report your payments to the credit bureaus if this change could be advantageous to you.
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FAQ
Why is my FICO 9 lower than my FICO 8?
Why is my FICO score so much lower than my other scores?
What is a good FICO score for 9?
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FICO Score Ratings
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Very Good
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740 to 799
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Good
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670 to 739
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Fair
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580 to 669
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Very Poor
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300 to 579
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What makes FICO score 9 so interesting?
What makes FICO Score 9 particularly interesting, though, are the changes when it comes to paid collection accounts, unpaid medical accounts, and home rental payments: Paid collection accounts: With FICO Score 9, collection accounts that are defined as paid in full on credit reports are now discounted in credit score calculations.
What is the difference between FICO score 8 and 9?
Though the FICO® Score 9 is an updated version of FICO® Score 8, the FICO® Score 8 is still the most widely used base score by lenders, meaning that, while you may have a better credit score from the FICO® Score 9 model, lenders are more likely to still use the previous version.
Do lenders still use FICO® score 9?
Even though FICO® Score 9 was officially launched to lenders in 2014, most lenders still use FICO® Score 8. Lenders get to decide on which version they use in their lending decisions, and FICO® Score 9 is only gradually being adopted. Over time, consumers might see slight differences in their FICO® Score 9 credit scores.
How does FICO® score 9 affect your credit score?
FICO® Score 9 introduced three major changes to how FICO® credit scores are calculated. Medical debt can have less of a negative effect, collections debt doesn’t have the same negative impact once fully paid, and rental payments — if reported by landlords — are also considered.