Your creditworthiness could soon go up due to some new credit score calculation changes in 2014, thanks to changes brewing at Fair Isaac, the company that calculates the widely used FICO credit score. Currently, if you fail to pay a bill, your credit will continue to take a hit years after you settle with the collection agency. However, under the new terms, debts that were delinquent but have been paid will no longer affect credit scores. Unpaid medical bills that have gone to collectors may still influence your creditworthiness, but they will not be weighted as heavily.
The changes are intended to make it easier for borrowers to get access to loans. Nessa Feddis, senior vice president of consumer protection and payments at the American Bankers Association, tells The Wall Street Journal that this could stimulate spending nationwide.
“It expands banks’ ability to make loans for people who might not have qualified and to offer a lower price
Currently, debts sent to collection services can stay on someone’s record for seven years after they have paid off their balance. Such a consumer’s credit score may go up as much as 100 points under the new guidelines, credit experts tell The Journal.
They also say that decreasing the emphasis on outstanding medical debt could lift some FICO scores by 25 points. Consumers may not even realize that medical debt is hurting their credit, since they often aren’t alerted when their insurance companies refuse to pay medical providers.
Fair Isaac says it will begin releasing the new credit score formula to credit bureaus this fall and lenders by the end of the year.
Maintaining a solid credit score is an important part of keeping a healthy financial profile. It’s also crucial to make a life insurance investment to care for your loved ones after you’re gone. Get a quote from Local Life Agents today.