What Does the New FICO 9 Scoring Model Means to Miles and Points Junkies

I had a beer with famous (or infamous to some 🙂 ) TBB from Travel Blogger Buzz yesterday night. A couple of other hobbyists showed up too, so we talked and exchanged some war stories, stuff like that. It was very enjoyable to talk to people who don’t think you’re crazy every now and then.

My new book cover has been butchered by someone who had no idea what they were doing. The Fiverr guy who had done my covers in the past, found some greener pastures, and it’s been a nightmare since then. So… another delay, damn it!

In my post on Friday, I mentioned the latest FICO announcement that its newest FICO 9 credit score model will not take into account debts that have been paid off.

The Most Important Overhaul of the FICO Algorithm in History

Yesterday, FICO announced that their new FICO 9 credit score will stop taking into account paid delinquencies. I wrote about FICO 9 score three months ago in my 3-part series starting here. Back then, they announced that they would not count medical debts, but all other details were shrouded in secrecy. Now, we at least know why. Because it’s huge!

I must say, I misspoke. It appears, medical debts will still count, just not as much as they used to. But taking paid-off debts out of the formula is extremely important, since according to the Wall Street Journal, 9.4 million people out of 106,5 million with collection on their accounts do not have a balance. Their scores are about to rise dramatically under the new system.

Also, according to FICO press-release, ““The median FICO score for consumers whose only major derogatory references are unpaid medical debts is expected to increase by 25 points.” That will bring millions more people into the fold.

Finally, the new formula gives people a real incentive to settle their bills. In my cynical mind, this is at least one of the reasons why FICO has come up with this algorithm, although it needs to be mentioned that another smaller credit scoring model called Vantaqe has been excluded paid off debt from their algorithm for over a year now. One way or another, millions of new consumers will soon see their credit score skyrocket.

Very few things are as important to our hobby (not even mentioning our general well-being) as credit. Unless you have a good credit score you can’t churn credit cards and you can’t do manufactured spend, which is buying money for money. At least, you can’t do it on the scale that allows some people to travel for free month after month, year after year, and/or make some serious money on the side.

Both FICO changes; regarding medical bills and paid off debts are huge for us, since it has the potential of bringing millions of new customers who are, for now, ineligible for the best current credit card offers, into the credit card game. Let’s try and see whether or not things are going to change for us, and if yes, how.

Are There More People Getting Into the Hobby?

The answer is it’s likely. It’s all the numbers game. Today, about 30% of the population in the US are eligible for the best credit card offers, and by eligible¸ I don’t only mean the folks with a high enough credit score, but also those who don’t carry credit card debt habitually. With the influx of millions of other consumers, the percentage of people who might get interested in doing what we are doing, will increase. There is no doubt about it in my mind.

Are There Many More People Getting Into the Hobby?

The answer is no. Every one of us who have tried to talk to their friends and relatives about the miles’and’points game and gotten eyes rolled at them in response, knows that most people are not going to be interested. It’s very annoying to all of us, but there is a solace knowing that this space is not going to be overcrowded any time soon.

Will Credit Card Companies Begin Offering Less and Worse Sign Up Bonuses?

I believe, there is a strong possibility this might happen. With the huge influx of new customers, the banks might feel they don’t need to be so generous. We might see smaller sign up bonuses and higher spending requirements. On the other hand, it won’t happen any time soon. The current FICO 8 (where 8 stands for 2008) score wasn’t adopted by most lenders until one or two years ago.

Can it Be That I Have No Idea What I Am Talking About?

Oh yes. There is a very good chance. Absolutely!

Here is the thing: FICO has changed its rules after numerous consultations with the government agencies and banking institutions.

Like I’ve already mentioned, it is entirely possible, at least IMHCO (in My Humble but Cynical Opinion) that the banks might very well be behind these changes for one reason only: they want their money back. I know it might sound like a conspiracy theory, but just bear with me for a moment.

As of right now, not only there are no incentives for anyone to pay off the debt, but it can and will be used against you. That 7-year credit reporting clock restarts the moment you pay off your debt. The way the system works, you are better off letting the time take its course.

While the new rules make it clear that the consumer does benefit from paying off the debt, it doesn’t mean that the lender won’t know you have had delinquencies. Your derags will still be there. And how banks will use this information is a huge mystery, at least for now. Banks may simply change the guidelines for what number they see as a credit risk, and they can do it on the fly. A banker once told me (after having one too many) that he hated folks like me. There is no money [to be made] in excellent credit, he said.

It is not impossible that a few years from now, the next excellent score might be 800. It doesn’t mean that will happen, but it might. In which case, there won’t be any huge influx of new customers, and I will have been proved wrong. To tell you the truth, I won’t mind.

Like I’ve said in my Travel Free book, our hobby is not about the future, it’s about today. Get whatever miles, points, or cashback you can right now, and deal with devaluations and other perils later on.

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