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New FICO score model may not unleash more lending or borrowing

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Some changes are underway in the way FICO credit scores are calculated. Those are the credit scores that determine whether consumers can get that new car loan or a better interest rate on a mortgage.

Fair Isaac, the company behind FICO scores, said that starting this fall, it will no longer weigh unpaid medical bills as heavily and will no longer consider overdue bills that have been paid off.

“It’s good news for consumers who are struggling with low credit scores that, now, they will be able to get a loan or a lower interest rate on that loan,” said Yahoo Finance Editor-in-Chief Aaron Task.

However, not everyone thinks the new FICO scoring method will give a big boost to consumer lending. Yahoo Finance Senior Columnist Michael Santoli sees the FICO action as more of a minor technical fix that might only give a small group of people access to credit.

“The bigger problem is incomes are just not there to support that much more debt, necessarily, across the board. I don’t necessarily see this as somehow unleashing a new heavy flow of credit toward consumers. It’s much more around the edges," Santoli said.

Loosening the way FICO credit scores are calculated also doesn’t necessarily mean that consumers will go out and get loans, according to Yahoo Finance Columnist Rick Newman. In the aftermath of the recession, data shows that people are getting better at managing debt. Even consumers who can get loans are not going out and asking for them, Newman said. 

The new credit scoring model, called the FICO 9, also does not change the way lenders determine the interest rate on your loan. “This does not change banks' ability to price risk correctly," Newman said. This means banks can still charge you a higher interest rate if you are at higher risk of defaulting on your loan, which means some consumers may opt out of taking out that car loan, he said. 

We want to know what you think. Was the way Fair Isaac calculated the FICO score too strict? Leave a comment below or on Twitter.