The National Consumer Assistance Plan (NCAP) is a comprehensive series of initiatives intended to evaluate the accuracy of credit reports, the process of dealing with credit information, and consumer transparency. In a previous post, we showed that July 2017 NCAP public record removals (civil judgments and some tax liens) had no material impact to FICO® Scores. In mid-September 2017, the three consumer reporting agencies (CRAs) are also scheduled to remove the following from credit reports:
- Medical collections less than 180 days old
- Medical collections that are ‘paid by insurance’
FICO recently conducted research on a representative sample of millions of US consumers to assess the impact of the NCAP-driven removal of these 3rd party medical collection agency accounts on the FICO® Score. Our results showed that NCAP-related medical collection removals have no material impact on the aggregate population to the FICO® Score’s predictive performance, odds-to-score relationship, or score distribution.
The removal of medical collections less than 180 days old is based on the date of first delinquency. Since most medical collections aren’t reported to the CRAs until more than 180 days after the first delinquency, we found that only 0.1% of the total FICO scorable population (roughly 200,000 consumers out of ~200 million) has a medical collection less than 180 days old. Medical collections that are identified in the credit file as being ‘paid by insurance’ are even less common.
Of the impacted population, roughly 3 in 4 saw score changes of less than 20 points. Most consumers with these medical collections have other derogatory information on their credit files, resulting in minimal impact to their FICO® Score once these collections are removed.
In 2014, FICO® Score 9 introduced a more sophisticated way of assessing collections, by ignoring all paid collections and differentiating unpaid medical collections from unpaid non-medical collections. Therefore, paid medical collections removed because of NCAP would already have been bypassed from FICO® Score 9.
FICO® Score 9’s enhancements led to improved predictive performance, while ensuring that those with different types of collections would receive a score commensurate with their credit risk. So these enhancements benefited lenders with a more predictive FICO® Score, while benefiting consumers who took a positive step toward credit responsibility and paid off a collection.
In conclusion, since NCAP medical collection removals are so rare, we observed virtually no perceptible impact to the ability of FICO® Scores to rank-order risk, volumes above or below score cut-offs, or bad rates at any given FICO® Score. Lenders can continue to rely on the stability and predictive performance of the industry standard FICO® Score.