26 Jul How credit score changes may help you

Q. When do the new credit score rules take effect? What are the changes and what could it mean for me?
— Borrower

A. There have been several changes to credit scores.

First, let’s talk about VantageScore, which is a newer alternative to the commonly used FICO score.

For this score, changes took effect on July 1, 2017.

“The new score doesn’t include things like civil debts, some medical debts, and tax liens, so consumers who have these negative items on their credit reports could see their scores go up,” said Beverly Harzog, a consumer credit expert and bestselling author.

She said those with limited credit might also see a boost as the new score attempts to create better scores for those with thin files.

But the most interesting change, Harzog said, is the use of trended data to calculate the credit score.

“For instance, if a consumer has debt and is paying only the minimum, they might be scored more harshly than someone who is paying more than the minimum and actively reducing their credit card debt,” she said. “So the score will attempt to look at the pattern of behavior over time and reward consumers who show good credit behaviors.”

But she said, it’s important to note the vast majority of lenders don’t use VantageScore. They use the FICO score instead.

“Consumers will only benefit from the new score if that’s the score the lender decides to use,” she said. “VantageScore is gaining in popularity, so while it won’t be an instant score boost for some folks, it could make a difference down the road.”

There were also changes in how the FICO score looks at medical debt.

Harzog said the new version, FICO Score 9, ignores paid collection accounts and the score also can tell the difference between unpaid medical collections and unpaid non-medical collections.

She said unpaid medical collections will have less impact on the score than unpaid non-medical collections will — a change that could help a lot of people.

How much and how soon this will matter for consumers is really up to the lender.

“The consumer only benefits if the lender uses one of the new scores,” she said. “Lenders are slow to change when it comes to scores.”

So the bottom line? Harzog said both of the new scores have the potential to improve credit scores, depending on the specific credit history of the people involved. One or both of these scores may become mainstream at some point, she said, but we can’t predict when that might happen, if at all.

“The best advice for credit scores remains the same,” Harzog said. “Pay all of your bills on time and keep low utilization ratios on your credit cards.”

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This post was first published in July 2017.