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Changes To Your Credit Score

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A low credit score can have significant consequences.  It determines the interest rates on your credit cards and loans, how much you pay for insurance and can also impact your ability to open a bank account.  You should review your credit report several times per year to make sure that there no errors that could have a negative impact on your score.  This is also a good time to review for any potential fraud, such as someone who opened up a new account using your social security number.

Often, financial hardship is the result of unexpected medical bills.  One in five households have medical related debt.  One result of late medical bill payments is a lower credit score.  Beginning in July 2022, the 3 major reporting agencies are making changes to the way they calculate credit scores.  These changes include removing approximately 70% of medical debt and increasing the grace period on medical debt from six months to twelve months.  Beginning in 2023, they will no longer report on any past due medical bills that are under $500.

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Free Credit Reports

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You can check your credit report for free annually (once for each of the three major credit reporting agencies).  However, due to the pandemic, you are now able to obtain a free report weekly until April 20, 2022.

To request your free credit report, go to AnnualCreditReport.com.  You will have to provide some personal information to verify your identity (date of birth, Social Security Number, and address).  The report will provide a detailed list of all your open and closed accounts, payment history, any late payments, recent credit inquires and additional personal information.

With the prevalence of data breaches, it is necessary to monitor this information at least monthly.  Look for errors – things like inaccurate late payments or accounts that you did not open and then dispute those with the credit bureau.  The website will provide instructions on how to report any errors.

There are also credit monitoring services available which will alert you to any suspicious activity.  Some are free from your bank or credit card company, while others charge a monthly fee.  Also call your homeowners insurance and inquire about the cost of a rider that will reimburse you for the expenses incurred if your identity is stolen.

Always review your report prior to applying for a loan to make sure there are no errors affecting your score that need to be corrected.  Finally, avoid going to freeannualcreditreport.com, which charges a fee to be able to access your report.

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Changes To Your Credit Score Coming

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A new credit scoring method is being rolled out this spring from FICO.  It is called the UltaFICO score.  Up until now the main factor in calculating your FICO score was your payment history (as well as the amount owed, length of credit history, new credit and the type of credit used).  After the change, there will be more emphasize on how you manage your checking and savings accounts.  Specifically, it will look at how long the account has been open, current balance, number of transactions and overdraw history.

The Fair Isaac Corporation (FICO) says that the new scoring will benefit you if 1. You have at least $400 in a bank account, 2. You have not had an overdraft in the last three months, 3. You have a history of having open bank accounts, and 4. You demonstrate frequent transaction history.

If you are turned down for a loan based on your FICO score you can request that the lender recalculate your score to include your banking activity.   You must grant permission for access to your data (and you chose which accounts to attach to your score).

These changes are supposed to help those who may have been turned down in the past or have limited credit history.  However, some may see their score go down from the new calculation.

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Credit Freeze Update

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Last November, we reported on the need to protect your identity by putting a freeze on your credit.  Beginning September 21, 2018, there is no longer a fee to do so.  A freeze stops someone from getting a loan or opening a credit card in your name (it does not restrict your ability to use your credit cards).

Once a request is made, it must be completed no longer than the next business day.  When you request a freeze, you will receive a PIN.  The PIN is used to unfreeze your account when you need to apply for a new loan or credit card.  Keep the PIN in a safe place.  When you request the freeze to be lifted (which is also now free), the credit agency must comply within one hour.

Insurers, employers, existing creditors and debt collectors can still access your credit report after a freeze is in place.

You can request a freeze by phone or online at all three of the major reporting agencies (Equifax, Experian and TransUnion).  We recommend that you do so with all three.  You can also place a freeze on your children’s account, which is also recommended.