Credit reporting could become a more effective tool for collection agencies seeking to recover unpaid debts after Fair Isaac Corp. announced changes to how it calculates its proprietary FICO credit score.
The company, which launched its FICO 10 scoring model last week, is now incorporating consumers’ debt levels into their credit score, which will likely lead to lower scores for as many as 110 million Americans, according to published reports.
That one-in-three Americans could see their credit score decrease is one thing. But, for collection agencies that report unpaid debts to the credit bureaus, being able to reference the new scoring model and the impact of unpaid debts on an individual’s credit score, may strengthen that argument.
The new scoring model is not designed to be “consumer friendly,” one credit scoring expert said in a published report. John Ulzheimer, the expert in question, said, “The job of scoring models is to properly assess risk, not simply give people better scores as a default position.”
Recent changes in past years have “been great” for individuals with judgments, medical debts, and tax liens, but has “watered down” the value and utility of credit scores and credit reports, Ulzheimer said.
Individuals who fall behind on their credit payments are more likely to see a drop in their score, as well as those who are maxed out on their available credit. Fair Isaac will also start dinging individuals with personal loans more, because those unsecured loans tend to be riskier than auto loans or mortgages.
“Those consumers with recent delinquency or high utilization are likely going to see a downward shift and depending on the severity and recency of the delinquency it could be significant,” Dave Shellenberger, FICO vice president of product management, said in a statement.