Your credit score can dramatically impact your life. That three-digit number can be the determining factor on applications for credit cards, mortgages, auto financing – even whether or not you receive a job offer. As such, changes to scoring rules can impact everyone, for better or worse.
Several credit scoring models are used by the credit bureaus, including FICO and VantageScore. However, not every American has a credit score due to a lack of credit history. As of 2023, there are an estimated 26 million adults who do not have a credit score. This is a fundamental flaw in the scoring system; it can be tricky to build a credit history if you cannot obtain credit because of your lack of a credit score.
There are several credit scoring changes and proposals announced in 2023 that, if passed, could dramatically impact credit scores. That’s why it’s important to be aware of these changes and understand how you can take advantage of their potential perks and how they could affect you negatively.
Continue reading to learn about the new rules issued in 2023 and the proposed changes that could potentially pass in the near future.
New FICO Credit Score Rules
The creator of the FICO score, Fair Isaac Corp., announced a new scoring module on January 23rd, 2023. Under this new module, FICO scores look at your accounts over the past 24 months as part of its new scoring system.
This means your score could hinge on factors such as the following:
- If you carry a balance on your credit cards each month
- If your outstanding debt has decreased or increased over those two years
- If you’ve consistently made your payments on time
Since the new scoring module can have an impact on your credit score, your score may go up or down, depending on that data. In fact, an estimated 110 million consumers could have their scores impacted by this change. That means you may qualify for credit more easily or face difficulties in the future.
New VantageScore Credit Score Changes
The three major credit bureaus – TransUnion, Experian, and Equifax – founded VantageScore in 2006. While its module is similar to FICO’s, it served as direct competition to the well-known model. However, these competing scores made it prevalent that most Americans pay attention to both scoring modules, as different companies may view one of the other scores.
The New VantageScore changes impact the way medical debt affects your credit score. Effective July 1st, 2022, the following changes were implemented:
- If you paid a medical debt after it was sent to collections, that debt would be removed from your credit report.
- The previous VantageScore module displays medical collection debt on your credit report for six months. However, scoring changes will extend that timeline to one year.
Additionally, the three credit bureaus have announced that beginning in 2023, medical debts of less than $500 are no longer included in your credit history, effectively removing almost 70% of national medical collection debts from credit histories. The new 2023 calculation now includes trended data from the previous 24 months of credit activity and balances, segments consumers by age so that younger people with thinner credit files are evaluated against each other instead of everyone, uses machine learning to better evaluate those with smaller credit files and adds rental payment history to credit reports.
Additionally, the new module takes more payment information into consideration when calculating scores. This change would see more weight toward consumers who pay more than the minimum towards their account balances, and it will become an indicator of your creditworthiness and credit risk.
Congress Proposed Credit Score Changes
FICO and VantageScore aren’t the only ones looking to change the current credit modules. Congress is currently considering significant overhauls on both scoring systems under The Comprehensive CREDIT Act and the Protecting Your Credit Score Act.
The following changes could be implemented if passed by congress:
- A government agency may be created to create credit score reports
- Employers would no longer be able to use credit scores to determine employment eligibility
- Insurers may not be able to use credit scores for policies, resulting in changes to the way these insurers charge customers
- Aside from bankruptcies, delinquent accounts would only be included in credit history reports for four years instead of the current seven-year period
- Late payments during the COVID-19 pandemic would be removed from credit history reports
- Subscription services, like Netflix, Hulu, or Disney+, will be used in credit history reports
How You May Be Affected By These Credit Score Changes
These credit score changes are likely to impact most consumers, and that impact can vary from one change to another.
For example, it is estimated that many consumers could see a FICO credit score fluctuation of around 20 points under the module change. That means if you’ve had high utilization on credit cards or any recent delinquencies within the past two years, your credit score could be negatively impacted.
Unfortunately, this change comes on the heels of the COVID-19 pandemic that financially impacted millions of Americans. However, if your accounts have remained consistent and trended downward in the last two years, your credit score may be increased.
VantageScore changes primarily affect consumers with medical debts. Under these new rules, your credit report would no longer include medical debt that you’ve paid or debt less than $500, which could result in a higher credit score. However, your credit score can be impacted for a longer time for any outstanding, delinquent medical debt.
There are changes to the way that account payments are considered, which are likely to affect far more consumers. Your score may increase or decrease based on your payment history, how much you pay toward your debt, and your trending balances.
Finally, the most impactful changes that could take place are the ones pending approval by Congress. However, these changes are primarily positive ones. These changes are likely to make it easier to obtain credit, especially for young people, those who lack credit scores, and minorities.
If this legislation is passed, credit reporting responsibilities would change hands, and the government would become responsible for millions of credit reports. It is still uncertain how that might work in the future or the impact that significant change may have on credit reports, scoring modules, and how credit reports and scores can be obtained.
By Alfred Wickham –