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FICO’s New Scoring Model Nixes Medical Debt, Frees Up Small Business Credit (Hooray!)

FICO’s decision in August to leave medical debt out of its scores has been a boon for small business borrowers.

When Fair Isaac announced this summer that it would minimize medical debt when it creates its signature FICO credit scores for consumers, it made a lot of people happy.

Sole proprietors, in particular, had a lot at stake, because their personal credit scores are synonymous with the businesses they run when they apply for loans.

It turns out that in just a few short months, at least one big lender, Balboa Capital Corporation, of Irvine, California, has experienced an uptick in qualifications for its equipment financing loans.

“We have seen an improvement in their scores. It’s not dramatic, but it’s enough to shift them up a credit bucket,” says Robert J. Rasmussen, chief operating officer of Balboa. The finance company has a loan volume of about $250 million a year.

In the small business lending world, a swing of just a few points on a credit score can mean the difference between approval and rejection, and between higher rates and lower ones. A score of 620, for example, might disqualify you for credit, while a score of 640 could open the door to loans. Similarly, a swing to 670 from 630 could lower your interest rates between one and two percentage points, Rasmussen says.

What’s more, Rasmussen says in his company’s experience, medical debt typically has had no bearing whatsoever on business performance. In years past, his loan officers had to strip it out of the score and then make a judgment call based on an analysis of core operations, and by looking at other debt like credit card and mortgage.

“Now we don’t have to do that,” Rasmussen says, and approval rates have gone up about 5 percentage points since August, he says. While a lot of other factors probably go into to the increase, such as promotions and an improving economy, removing medical debt from FICO is definitely one factor affirms Rasmussen.

“Medical debt isn’t purely reflective of a small business owner’s overall ability to pay, or desire to pay their debt,” Rasmussen says.

September 25, 2014

By JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and

Jeremy Quittner is a staff writer for Inc. magazine and He previously covered technology for American Banker and entrepreneurship for BusinessWeek.

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