I WAS WORKING WITH A YOUNG COUPLE THIS WEEKEND who are trying to relocate their family to Benicia. Unfortunately, they have a couple of paid medical collections in their credit profile that are dragging down their credit scores, making it difficult to qualify for the type of financing they need to purchase a home in Benicia.

News feeds were aflutter last week with the announcement of a new credit scoring model coming this fall from Fair Issac, creator of the FICO scoring models.

FICO 09 could have a dramatically positive effect on some consumers’ credit scores, which may help some borrowers qualify for financing and perhaps receive improved interest rates on credit cards and auto loans. Unfortunately, Fannie Mae and Freddie Mac have indicated that they will not adopt the new models, so this will not help the young couple mentioned above.

The biggest changes with the new model are in the treatment of medical collections.

Unpaid medical collections carry less weight than with the current scoring model, resulting in as much as a 25-point increase for those who have unpaid medical collections in their credit profile.

Paid medical collections will be completely excluded from scoring. It is estimated that some consumers could see as much as a 100-point increase in their FICO scores, depending on other factors in their credit profile. This would make a big difference for these borrowers. Collections that are not medical in nature will be treated the same as in the current scoring model.

Some data suggests that as many as 64.3 million consumers have medical collections on their credit reports, and as many as 9.4 million have collections being reported that are paid.

Consumer advocates and some regulators have long argued that medical collections should not carry the same weight in a borrower’s profile, as these are often the result of disputes with insurance companies or the result of an unforeseen circumstance, such as an accident or other health emergency.

Fannie and Freddie set the standard for most home lending activity, so as long as they refuse to adopt the new scoring model the changes will not help most home loan borrowers with medical collections in their credit profile.

There is a silver lining for the young couple above: Their credit report is reflecting four unpaid collections, when in fact the accounts are duplicated, and in fact they have been paid.

Because of the marvel of the Internet, I was able to assist them with the dispute process to have their report corrected. Though the process may take up to 30 days, it should result in more than enough credit score improvement for them to buy their home in Benicia.

Next week, I will offer further details on how to get a free (no strings attached) copy of your credit report, and how to easily dispute anything that is not accurate, in order to improve your credit scores.

Guy Benjamin (CAL BRE License #01014834, NMLS 887909) writes a weekly column for The Herald, offering general information on real estate matters. As it is impossible to address all possibilities and variations, he will try to answer individual questions by readers who contact him at 707-246-0949 or gbenjamin@rpm-mtg.com.

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