New FICO credit rules could cause credit scores to rise

 

  • New criteria will strip some negative information from credit reports.
  • For those affected, scores could rise by up to 20 points.
  • The new changes took effect July 1, 2017.
Do you know your credit score?

As of July 1, 2017, consumers may have noticed that their credit score has increased.

Improved standards for new and existing public records in the databases of the three major credit reporting companies were implemented on July 1. As part of this change, a majority of civil debts and tax liens will be excluded, which means some credit scores will edge higher.

The new standards follow a report by the Consumer Financial Protection Bureau that found problems with credit reporting companies and recommended changes to help consumers.

Altogether, about 7 percent of the population will have a a debt, such as a judgment or tax lien removed from their credit file, according to a report by Fair Isaac. The company calculates and sells FICO scores, one of the most commonly used scores by lenders.

Once that information is stripped out, their numbers could rise by up to 20 points, Fair Isaac said.

“Analyses conducted by the credit reporting agencies and credit score developers FICO and VantageScore show only modest credit scoring impacts,” the Consumer Data Industry Association, which represents Equifax, Experian and TransUnion, said in a statement.

Still, credit reporting and scores play a key role in most Americans’ daily life. The process can determine the interest rate a consumer is going to pay for credit cards, car loans and mortgages — or whether they will get a loan at all.

In the near term, “it will lower the cost of borrowing,” said Andrei Andreev, an adjunct professor of finance at San Diego State University.

For now, by eliminating those large sources of potential for errors, “we think it will represent credit worthiness better,” he said. (Incorrect information on a credit report is the top issue reported by consumers, according to the CFPB.)

Contact Vujovic Law at www.vujoviclaw.com to see if bankruptcy or other debt options might help address debts that you may have other than judgments and tax liens.  Often, a bankruptcy discharge can improve your debt to income ratio, which can make it easier for you to qualify for certain types of credit, depending upon lender guidelines.

Depending upon your individual case, filing for bankruptcy protection can help to finally put a negative credit history behind you and lead to an opportunity to pursue a fresh financial start, enabling you build your new credit history, rather than being overwhelmed by the consequences of credit mistakes of the past.