Your credit score might take a big jump this fall thanks to new debt calculation measurements from FICO.  FICO is the largest and best-known of several companies that provide software for calculating a person's credit score.  The Fair Issac Corporation (FICO) helps the bank determine if you get that car loan or mortgage.

Starting in the fall, FICO is changing some of the things it takes into consideration when calculating the amount of debt you can take on.

  1. Medical debts will have a smaller effect on your score.  If your only major bad mark for credit is that unpaid hospital bill -- it's not going to matter much and your FICO score could go up by as much as 25 points.
  2. If you have debts that went into collections, but then you paid them, it won't hurt your credit score.  Before the changes, just having the bill go into collections would haunt you for seven years.
  3. They are building a system to analyze your potential even if you don't have much of a credit history.

This will help millions of Americans since about half of all debt that goes into collections is medically-related.  It will also help those who are trying to establish credit or who have previously been great with their money but paid mostly cash.  If that person now wants to buy a house and apply for a mortgage, it can sometimes be difficult since companies like FICO take that as a bad risk -- when in reality, they're just damn smart in what they buy and what they don't borrow.

There are some people who don't like the new system.  My guess is hospitals won't like it because it removes a LOT of the power they have to recoup losses.  The indirect result of that could be even higher healthcare costs and even more hospitals would have to cut corners to save money.

Here's the rub:  the software the FICO provides is being updated -- but lenders will have to buy the new software.  So, if you're getting ready to apply for that loan this fall, make sure the bank or lending institution is using the new version of FICO's calculation instead of the old.  Yeah, that's gonna get confusing for everyone!