Changes in Credit Scoring

Over the past few years, there have been some changes in the way your credit score is calculated.  These changes can help if you’re planning to buy a home, in fact, these new rules may even help you get the credit score that you need to get that mortgage!  Even though your payment data, debts and court records will all still count, the new scoring model reflects some different weighting – in favor of the consumer. Score 9 rolled out this fall, and you may have already noticed a change in your score based on the new formula.

Four Changes to Credit Score Calculations

Rent:  If you rent your home or apartment and you pay on time, you may just get a boost to your credit score.  The new formula promises to weigh renting more heavily than the previous version. Paying on time every month could give you a boost – and a better relationship with your landlord.

Medical Collections: If your medical debt was weighing down your score, then the new model is great news for you. Medical and healthcare related debts will matter less than they have in the past, allowing consumers with otherwise good scores to be hurt less by high medical bills or overdue medical expenses. If your medical debts were impacting your ability to secure a residential mortgage, this change is very good news for you.

Trending Data: If you have a very slim credit portfolio, your data may be interpreted based on trends – the new scoring formula will use predictive models to determine your credit worthiness. This new technique will impact youthful consumers who have not yet established much credit and those with a long history of avoiding credit and choosing cash instead. If you have an established credit record, use credit cards or have a car loan, this change will not have much of an impact on your score.

More Even Scoring: One of the goals of the Score 9 model was to encourage lenders to upgrade to this new formula. While upgrading is not mandatory, it is definitely encouraged – and some lenders and credit reporting agencies are still using old scoring models.  As businesses continue to adapt, credit scores across major credit bureaus are expected to become more consistent, thereby making it easier to for a lender to get a clearer picture of your background and creditworthiness.

While these changes are expected to help most consumers, the best way to boost your credit score is to pay your bills on time and make sure your debt ratio remains low. If you are considering applying for a residential mortgage within the next year, a good credit score is a must. The right score will not only make approving your loan easier for your lender, but it could help you secure lower rates on your homeowner’s insurance as well. If you haven’t checked your score lately, it is time to review your credit report, you could be in for a nice surprise.