Improvements to the FICO Score 9 system brought two big changes to how it assesses collections. It will disregard all paid collection accounts. It will also differentiate between unpaid medical collections and unpaid non-medical collections.
These changes are based on research that shows that changing these two areas of criteria will improve predictiveness, which will allow lenders to more accurately evaluate consumers who are seeking loan approval.
The analysis of bureau data showed that consumers with unpaid medical collections were less likely to default on their loans than those with unpaid non-medical collections. In fact, with the new system, borrowers whose only issue was an unpaid medical collection had a score that was approximately 25 points higher than it was with the previous version of the FICO® Score system. This means that if a prospective car buyer has some unpaid medical debt, but shows no collections otherwise, they may have greater opportunities for loan approval with better rates.
Effectively Managing Your Debt for a Better Score
When you are trying to improve your credit, you're probably looking to find a method that will help you do it faster. And while credit repair doesn't happen overnight, you can take steps now to ensure that you have the best chance possible for loan approval.
- Create a budget
If you haven't already, add up all of your monthly bills and miscellaneous (food, gas, supplies and entertainment) expenses and subtract that total amount from your monthly income. What you have left over, use to pay down your debt.
Once you have determined how much you can pay to clear up your debt, decide which collections are more beneficial for you to pay immediately. You could begin by paying down high interest balances first, as well as collections that are severely impacting your credit history. With the way the FICO® Score 9 system calculates your score, you can focus on resolving your non-medical debt and then begin the process of an auto loan knowing that your medical debt will not play as large of a role in the calculation of your credit score. Basically, the FICO® Score 9 update will allow you to reduce the priority of paying down medical collections right now (by concentrating on other collection accounts) in order to improve your score faster.
- Maintain a Steady Payment History
By paying on time for your car loan, as well as keeping up with any monthly repayment plans you have arranged, you will rebuild your credit so it will be stronger in the future, allowing you to have opportunities for better rates and deals on financing.
We Can Help
If you're worried that a past medical debt is hindering your chances to get approved for a car loan, Drivers Lane can help. We have a nationwide network of car dealers who work with car buyers with damaged credit. Complete our fast, obligation-free and secure online application today, and you could be back on the road tomorrow.