Money Health

Freedom Debt Relief: Demonstrating Positive Impact for Customers

FICO Study: Positive Impact
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To solve a problem, it’s critical to identify the root cause. For many financially distressed consumers, the crux of their problems is an excessive debt load. In these cases, an ideal solution isn’t more debt, but rather relief from debt. More importantly, any solution is more likely to be sustainable if accompanied by a material lifestyle change. This is the power of debt settlement.

I am excited to share results from a first of its kind study in the debt settlement industry. The study is designed to shed more light on what happens to a consumer’s FICO® Score and financial health as they progress through the debt settlement journey. Because of the size of the study, we’ll break this out into a series of blog posts over the coming weeks, but here is a teaser of the key findings:

  1. FICO® Score Recovery – Many of our prospective clients inquire about what happens to their credit score during debt settlement. While we had an understanding of what happened through anecdotal evidence, we never formally quantified the impact that debt settlement has on credit scores — until now. We observe that the typical FDR Graduate experiences a decline in their FICO® Score during the first six months of enrollment, and afterwards experiences a steady recovery in their FICO® Score. One of the most powerful observations was that the rehabilitation continues, even after graduation. At the time of graduation, only 24% of FDR Graduates had median FICO® Scores of 680 or greater; two years later, the number more than doubled to 49%.
  2. Reduced Debt Burden – Following our FDR Graduates through the program also highlights a dramatic reduction in their debt burden over time. The median enrolled debt for FDR Graduates is $28,000. Forty-five months after enrollment, their debt dropped to $3,800. What is particularly encouraging is the strong correlation between the settlement of debt and the rehabilitation of the FICO® Score.
  3. Responsible Credit Behavior – I hinted at this earlier, but what I feel is the most powerful observation of the study is not what happens during the consumer’s time in debt settlement, but rather what continues to happen afterwards. It is inspiring to see that FDR Graduates demonstrate more responsible credit behavior when measured two years after graduation. We see their median credit utilization continue to decrease. Our graduates have a median outstanding credit card debt of $25,000 and a median credit card utilization of 75% at time of enrollment. Two years after graduation, that number has dropped to $3,300 and 36%, respectively. If you combine this fact with the observation two years after graduation, our graduates have a delinquency on their credit report in the past year only 27% of the time, it’s no wonder the general trend of FICO® Scores continues to improve.

There’s a lot to unpack in each of these key findings and I look forward to sharing greater details in each of these findings over the next few weeks.

Freddie Huynh is Vice President of Data Optimization for Freedom Debt Relief where he is responsible for identifying new and better ways to use data to enhance the debt settlement business. Previously, he spent 3.5 years at Freedom Financial Asset Management re-architecting the credit risk infrastructure to deliver some of the best returns within the marketplace lending industry. Freddie also spent 18+ years at FICO where he oversaw the development, maintenance, and analytic support for FICO® Scores and was the architect of FICO® Score 8 and FICO® Score 9. Also a financial writer and contributor, Freddie holds a B.A. in Mathematics from Claremont McKenna College and an M.S. in Operations Research from Stanford University.