Credit scores for millions of Americans may get a boost after July 1. It’s not because these consumers suddenly became more creditworthy or got better at managing credit cards. It’s a scoring change. But do these higher scores mean good news for you or lenders?
The three credit reporting bureaus—TransUnion, Equifax, Experian—have been adjusting how consumer scores are calculated since a 2015 settlement with 31 State Attorneys General. As a result, the average credit score may improve to 700 after the latest score changes are implemented July 1.
The changes affect scores by VantageScore, which is a reporting agency handling credit card data for TransUnion, Equinox and Experian. (FICO scores, which are used by most mortgage lenders, are apparently not impacted by the reporting change.)
So lenders may get a more accurate picture for some credit card users, though the higher scores may also lead to approval for riskier borrowers. It’s estimated some credit scores could jump as much as 20 to 40 points.
But you probably won’t see a boost if the following doesn’t apply to your credit history:
• Removal of some negative information, such as tax liens, civil judgments and medical debt.
In the past, information about a borrower who is taken to court by a creditor (for unpaid debts) has been included on a credit report. Now, it can’t be unless three specifics are listed: a person’s name, address, and Social Security number or date of birth. Oddly enough, most public records for tax liens and civil judgments do not include all this data, so it was sometimes keyed to the wrong credit report. Medical bills, which were reported as unpaid debt before insurance reimbursements were complete, now won’t be included until 180 days have passed.
• Forecasting trends to predict credit habits.
Rather than looking at 30 days of credit use, VantageScore will track your behavior patterns over the last 24 months instead. For example, your score may rise if you make larger payments regularly and get rid of debt, compared to a borrower who keeps several outstanding balances and just pays the minimum. So keeping credit cards you don’t use (and the credit limits) is not as much to your advantage as it has been. You may want to close some accounts.
• Using machine learning to score “credit-less” and “new-to-credit” consumers. Tracking your behaviors, such as if you pay your bills on time, can be used to factor how you will handle credit.
The factors comprising a credit score remain basically the same:
- 35% = Payment history (Do you pay on time?)
- 30% = How much you owe (Outstanding balance)
- 15% = Length of history (Had the cards long?)
- 10% = Utilization (How much credit do you use?)
- 10% = New credit (Applications made)
And, to maintain a good score, you still must:
- Pay every bill on time
- Keep your credit use low, using 30% or less of your card’s credit limit
- Balance revolving credit (credit cards) and installment credit (like auto loans)
- Don’t apply for new credit accounts too often
The best way to know if your credit report has been impacted by VantageScore reporting changes? Go to www.annualcreditreport.com where you can access your credit history once a year for each credit bureau (each one reports credit data a bit differently).