It may have been a subtle upswing. Or maybe you’ve suddenly found yourself basking in new found credit score excellence. That’s because in the past six months or so, the credit reporting agencies have been changing the way they calculate consumer credit scores. And, it turns out, that’s good for anyone who’s an American consumer.
After the Consumer Financial Protection Bureau found a number of problems with the way those big three agencies—that would be Experian, TransUnion, and Equifax—collect and track your data, the agency suggested reforms that have since been implemented as of April of this year.
Just as a quick primer: your credit score is just a record of your borrowing and your debt. It’s your credit score that quantifies the quality, amount, and riskiness of your borrowing and your debt. Like Google’s algorithm, the exact formula for how your score is determined is a bit secret. But it basically breaks down like this:
- 35% of your score is determined by your payment history (and whether it’s consistent or if you’ve missed a few payments)
- 30% is based on how much money you owe in total
- 15% is based on the length of your credit history (or how long you’ve had debt or credit—so the longer the better)
- 10% is based on how much new credit you’ve taken on
- and 10% is based on the types of credit used (revolving debt, like department-store credit cards, school loans, or a mortgage, that kind of thing)
So now that the Consumer Data Industry Association, which represents those big three credit-tracking firms, has altered their tracking methods a bit, here’s how those changes have influenced your score.
1. Bye-bye, tax liens
This past spring, some civil debts and tax liens were dropped off of credit reports altogether, boosting credit ratings for almost 12 million people by up to 40 points or more. That’s a not-insignificant increase, especially if you’re in the process of repairing your credit or applying for a mortgage.
Why are the civil debts coming off? It’s all a matter of keeping your information safe. The new rules for the CDIA require that public records data—like liens and civil judgments—had to contain specific consumer data, their name, address, Social Security number, and/or date of birth, and that that information also has to be refreshed every 90 days. So if public records data failed to include all of that information (and keep it updated), they had to be excluded from credit reports. Consider it a hassle of record-keeping that worked out in your favor.
2. Your information is safer (phew)
So this is actually the data point driving all of these changes. Too many American credit reports were showing up with errors, mistaken identity mistakes, and cases of fraud. Incorrect information on a credit report is the No. 1 issue reported by consumers filing a complaint, according to the CFPB.
What the recent report by the CFPB found is a number of problems with the way consumers’ reports were insured against inaccuracies. The CFPB, which is essentially a watchdog agency, said Equifax, Experian and TransUnion had quality control systems that were insufficient and that they did not conduct reasonable investigations when consumers disputed something on their reports.
Improving that accuracy is why the tax lien data (which is harder to verify in a timely way) is coming off, and why your report is going to be safer from human and machine errors that were seriously messing with people’s lives.
3. The way medical debt is reported is also changing
Patients at your healthcare establishment may also benefit from new guidelines around how that data is managed—which ultimately affects the way your collections department operates. Collection agencies and debt buyers cannot report a medical debt until 180 days after the date of delinquency. This change helps consumers gird against overdue medical bills showing up on their credit reports as a result of insurance delays. Medical debts that have been previously reported have to also be removed from credit reports if they’re being paid by insurance (or have been paid in full).
It’s a good time for credit scores, indeed. And that means it may be a be a great time to use it to your advantage and get that loan you’ve been considering. Check out BHG’s fast, easy financing for healthcare professionals—it may be just what you need.