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FICO Score 9: Paid vs Unpaid Collections

90 percent of lenders still use FICO scores in some way when assessing your risk as a borrower. So if you have any interest in ever getting approved for a high limit credit card, auto loan, or a mortgage, it's a wise financial move to know where your FICO scores stand and what you can do to improve them.

The newest version of the FICO credit score, FICO Score 9, hasn't actually been adopted by many mainstream lenders because it's still so new, but it's important to recognize that this score does bring with it some very positive changes for consumers.

Let's begin by talking about what we all hope to never find on our credit reports— the dreaded collection.

Old FICO Scores and Collections

Here's how the story often goes. You somehow forget to return the cable box to Comcast when moving. They bill you for it after you've paid what you thought was your last bill, and for some reason the additional charges go unnoticed. The charge goes beyond 90 days late and then Comcast decides to turn your account over to a collection agency. The collection agency promptly reports you to the major credit bureaus, and voila—your FICO scores take a nosedive.

The interesting thing about old FICO Scores (any score version prior to FICO Score 9) is that they treat unpaid and paid collections the same. So if you do the right thing and immediately pay off your debt, you essentially get no credit for it in your FICO score. Yes, the account should be updated on your credit reports to read as a "paid" collection instead of an unpaid one, but you will not get any boost in points.

How FICO Score 9 Treats Collections

FICO is attempting to address this with its new FICO Score 9 by completely disregarding any third-party collections that have been paid. Unpaid collections will of course continue to negatively impact your FICO scores, but paid collections will have no impact at all. This is a big change, and a great one for consumers who are working hard to pay off their debts, clean up their credit reports, and improve their credit scores.

In addition, unpaid medical collections will have a lesser impact on FICO Score 9. They won't be disregarded completely, but to me this is a sign that FICO understands just how terrible medical billing is in our country and how medical collections are often not a reliable indicator of risk.

Should You Care About FICO Score 9?

Yes, you should care about FICO Score 9 and how it could affect your FICO scores, but don't expect many potential lenders to be using this score quite yet. The best credit card issuers, auto lenders, and especially mortgage lenders will continue to use older scoring models they know they can trust. And like any new credit score, FICO Score 9 will simply take awhile to make itself known. With that said, it's certainly nice to see FICO making some more consumer-friendly adjustments for a change.

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Joshua Heckathorn's picture

Joshua Heckathorn is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past twenty years.  He received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his MBA from Seattle University.

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