If your credit score has suffered due to a tax lien, a civil judgment, or medical debt, you could benefit from updated policies that change the way the three major credit bureaus – Equifax, Experian, and TransUnion – calculate consumer credit scores.
The credit bureaus have already begun phasing out millions of entries on credit reports that reflect such information; it’s estimated that as many as 12 million people could see a better credit score due to the changes.
Experts say that public records reported by credit bureaus have long been based on incomplete and inaccurate filings, and that these new policies will help consumers whose scores have been unfairly lowered due to such negative information.
Medical debt reporting changes give more time
Meanwhile, a settlement by the New York state attorney general in March 2015 means credit bureaus cannot add medical debt to a credit report for an extra 180 days beyond the current waiting period.
This means people will have more time to navigate complex medical billing situations before debts are reported on their credit histories. Often, an insured person will have medical debt on their credit report, even though the insurance company eventually paid the debt; this problem will hopefully occur less often under the new rules.
The importance of credit
Credit scores are incredibly important for anyone wanting to secure a loan, take out a mortgage to purchase a home, rent an apartment, or apply for a credit card. If your credit score is excellent, you’ll be approved for loans and get a low interest rate as well. If your credit is poor, you may be turned down for loans, credit cards, leases, and even jobs. If you get a loan, your interest rate is likely to be higher.
The credit bureaus use several factors to calculate credit scores. They are: payment history, available credit to debt ratio, amount of new credit, length of credit history, and types of credit utilized. Of these, payment history and available credit are the most heavily weighted factors; to have the best credit score, folks should always pay their bills on time and keep their balances well below their credit limits.