How credit scores are evolving to improve access to credit

Credit scoring agencies make it easy to count recurring bills for your account. They are also making changes related to medical debt.

NEW YORK. A low credit score can hurt your ability to get a loan, secure a good interest rate, or increase your credit card spending limit.

Some reasons for a low score are beyond your control, such as unexpected sickness debt or lack of credit history.

Credit rating agencies are currently working to improve access to credit by giving people more time to pay medical bills before debt appears on the books and by removing other debt altogether. They also make it easier to calculate rent, utility bills, and other recurring bills—a boon for those who need credit the most.

What is a credit score and why is it important?

Simply put, a credit score is a formula that lenders use to decide how likely you are to pay off a loan. If you are considered a risky bet, you will pay more to take out a loan, or you may not be able to take out a loan at all.

The factors that go into your score are complex, and advocates say it’s positive that ratings agencies have begun to make it easier for consumers to prove they can get back the money they’ve lent. This is especially important for so-called “thin-file” consumers – those who do not have extensive credit history, who are often younger or have lower incomes.

“I see efforts being made to even out the credit score,” said Rosalyn Glenn, Prudential’s financial advisor, who focuses on expanding financial inclusion. – For example, adding rent payments to credit reports, because there is a segment of the population that rents, not owns. This is exciting because the valuation can enable them to get better rates on things like insurance and loans. I really believe there is progress on this.”

What happens to medical debt?

In doing industry research during the pandemic, the three most used credit rating agencies found that consumers with medical expenses are just as likely to be creditworthy as those without.

As of last July, paid medical collection debt is no longer included in consumer credit reports, and the time period before unpaid medical collection debt appears is now a year, down from six months. This gives people more time to work with insurance and medical providers to pay off debt.

In the first half of 2023, Equifax, Experian and TransUnion will also remove less than $500 in medical bills from their credit reports.

When 25-year-old Jonathan Alvarado was in a car accident last year, he knew health care costs wouldn’t be the only blow to his finances. A landscaping contractor in Plainfield, New Jersey who prides himself on his prudent financial demeanor, Alvarado faced knee surgery at the start of his busiest work season, which hampered his productivity.

Alvarado said he only realized the consequences of his access to credit in hindsight. Even after the insurance, Alvarado still owed about $1,200, which took him several months to pay off. During this time, his credit score dropped to 680, which is still considered good, but lower than it was. When he finished paying off the debt, he jumped to 775, the highest he had ever been.

It wasn’t until Alvarado looked into what caused the recession and rebound that he learned that lingering medical debt was to blame.

“The difference is almost a hundred points,” said Alvarado. “I would have paid earlier if I had known.

David Anthony, 43, who drives a company truck in Baltimore, only learned that sick debt was hurting his creditworthiness when his employer pointed out the high interest rates he was paying on a car loan. After reviewing his bill, Anthony disputed some of the medical bills, some of which were paid, eventually raising his bill from 500 to over 700.

“I got a big loan for the cars I have now,” he said. “That first car, it was a 17 percent interest rate. That’s what alerted my employer.”

Anthony now has a single-digit loan.

How else can I improve my credit score?

While consumers have long been able to add rent and utility bills to their credit files, bureaus have made these additions easier and cheaper in recent years.

For example, Experian has the option for consumers to opt into the Experian Boost service, which calculates these types of payments without charging a fee. additional information on credit reports as it is not automatically included as a matter of course.) Those who use the program often see their scores increase.

“You pay once a month for the service you get — it’s a lot like getting a loan,” said Rod Griffin, financial health advocate at Experian. indicate that a person may be more exposed to credit risk than their report may show if they have very little credit.”

For people with thin credit cards or scores below 680, Experian sees an average increase of about 19 points, Griffin said. Others may see their scores increase by 12 or 13 points. About two-thirds of people see an improvement in their grades, Griffin says, but this tool helps even those who don’t have a longer credit history.

To use this tool, you give Experian permission to collect your monthly payment history and banking information, whether it be a mobile phone plan, water bill, streaming service subscription, or rent.

For Brandon Reese, 41, a financial planner in Dallas, Texas, it made sense to help his 20-year-old daughter, a nursing student from San Antonia, enter the program.

“When she first opened a line of credit, her account dropped,” he said. “But with that, we were able to raise it by about 15 percent.”

Reese said he also advises his retired clients to use these programs.

“Older people also have low credit scores because they have already paid everything off,” he said. “So their credit goes down. But now it’s Verizon, AT&T. Hulu, Disney package, Netflix, your gas bill, fintech companies can justify this with a history of payments.”

Technology companies that provide services similar to Experian Boost, at low cost or for free, have become widespread.

“Now it’s one of the number one things we encourage people to do,” said Silvio Tavares, CEO of VantageScore, another provider of national consumer credit ratings. Like FICO, VantageScore uses credit reports compiled by Equifax, Experian and TransUnion to calculate a credit score using a proprietary algorithm. “If you’re behaving creditably — like paying your rent and utilities on time — you should include that.”

How to take part?

To include alternative credit information on your report, you have several options. One is to sign up for ExperianBoost or Ultra FICO by going to the companies’ websites and granting them permission to access your checking, savings or money market accounts. This will allow the credit bureau or scoring company to analyze your spending, savings and successive payment history. While other financial technology platforms provide similar services, these two options charge no fees.

The Associated Press receives support from the Charles Schwab Foundation for educational and explanatory reports to improve financial literacy. An independent foundation is separate from Charles Schwab and Co. Inc. AP is solely responsible for its journalistic activities.

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