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FICO Changes Could Make Loans Available to More People, CU Executives Tell The Record Journal
Wednesday, August 27, 2014 7:00 AM

Oklahoma credit union officials are considering the best way to let their members know that the recalibration of the FICO benchmark number by Fair Isaac Co. may help bring loans within their reach.

“We rely on it pretty heavily, so we expect to see a lot of score elevations,” Pam Case, associate vice president of financial services at the FAA FCU, told The Record Journal Reporter Brian Brus. “We’re not sure if we’ll market that. A lot of consumers don’t even worry about their credit scores; they don’t realize how much it impacts them. Educating them is one of the best things we can do for them.”

Fair Isaac representatives announced this month they will begin counting medical debt collections as a separate category from other collection actions. In the past, FICO scores recognized all collections equally regardless of their origination – a bad auto loan carried the same weight as a cellphone bill or medical bill. FICO scores range from 350 points to 850 points and take into account the credit information included on the three major credit agencies, Equifax, Experian and TransUnion.

The new FICO 9 model, which credit bureaus will roll out before the end of the year, is expected to more fairly portray repayment risks by millions of applicants, according to Fair Isaac, as medical expenses are typically not sought like credit card debt. For borrowers whose profile has been dragged down by a single unresolved medical debt, scores are expected to rise by an average of 25 points.

That might seem like a major shift in the financial world, since FICO has been used by so many institutions as a quick reference point. But as Oklahoma credit union officials explained to The Record Journal readers, its effect depends on whether FICO 9 is used at all in deliberations.

The larger value will be found beyond the application approval stage, according to David Dykes, CEO of First Family FCU, a low-income community credit union that serves Okmulgee, Okfuskee and McIntosh counties. Many of his credit union’s members struggle with health insurance coverage issues.

“We like to pride ourselves in looking a little deeper and further into a person’s credit rating already,” he told Brus. “More importantly for us in this case, though, we use the FICO score to help determine interest rates. Those who have 750 scores and above are A-plus borrowers who get the 2.99 rate for an automobile, for example, while those at the 600-and-below mark can still get a loan, but at a 14.95-percent interest rate.”

“So I’m not sure how much of an impact this will have on our approvals, but it will have a bearing on the monthly payments we set,” Dykes continued.

Dykes said he’s still not sure how much his credit union will promote the FICO 9 changes. He said his loan officers were excited about the potential, he said, and First Family prides itself in consumer education.

“We want to get our members the interest rates they truly deserve,” he shared with The Record Journal readers.