Credit Score Changes from New Credit Laws: What You Need to Know

If you want to be financially stable and independent, there’s one extremely important thing. Do you know what it is?

You guessed it right. It’s your credit score.

It’s like a passport for the financial world. But here’s the big news. This passport is about to change, and you aren’t the one to blame. Fair Isaac Corporation is a company that is responsible for creating the three-digit score. However, now they are changing this formula. How is it relevant to you?

The credit laws are about to change. If you already suffer from a bad credit score, your problems might increase.

In this article, we will discuss the most crucial credit law changes, changes in your credit score, and how to save yourself from this distressful situation.

So, let’s dive straight into it.

Understanding Your Credit Score

The credit score is not just a three-digit number. It has a huge influence on your financial life. A credit score numerically represents your credit history and financial behavior. There are numerous benefits of having a high credit score, whether buying a home, purchasing a car, employment, insurance, etc. Let’s understand it with an example.

Suppose you want a loan to purchase a car. So you go to the market for a new car and apply for an auto loan. The lender checks your credit score.

Now, that’s where the real game begins.

If your credit score is 720, you might qualify for a car loan with a low-interest rate. It means you’ll pay less in interest over the life of the loan. Less interest equals more savings. But what if your credit score is not so good?

Let’s assume your credit score is 580. You could still get the loan, but the interest rate might be 10% or higher. So, your dream car can cost you more overall than someone with a great credit score.

That’s how your credit score determines whether you can afford the car you want and how much you’ll pay for it.

Credit Laws and Other Factors Affecting Credit Scores

Your credit score isn’t about your purchasing decisions only. It includes five major pillars that you must know about. By knowing these, you can better understand managing your financial life.

  • Payment history: Timely payments on credit accounts, loans, and bills positively impact your credit score. Late payments, defaults, collections, and bankruptcies lower your score.
  • Credit utilization: The ratio of your credit card balances to credit limits affects your score. High credit card balances relative to your limits can negatively impact your score.
  • Length of credit history: New credit accounts may lower the average age of your credit history. If you have a longer credit history, your score will also increase.
  • Types of credit: A diverse credit mix accounts, such as credit cards, mortgages, and installment loans, can be favorable for your credit score. However, an excessive number of credit inquiries within a short period can do more harm to the credit.
  • New credit score laws: Changes in credit laws and regulations, such as those affecting credit reporting and consumer protections, can influence how your credit information is reported and used by creditors.

To get more advanced knowledge and strategies, you should check out the legal loopholes

Recent Changes in Credit Laws and How Your Credit Score Could Change

Now, let’s discuss the most important part of this article: what recent changes are happening in credit laws and how they can affect you. Knowing these is important because they can decide your financial future.

No More Medical Debts

Medical debts are one of the most problematic problems for people. What can you do if you suddenly get sick? Obviously, see a doctor.

But your credit score can start decreasing if the medical debt piles up and is subsequently reported on your credit reports. You don’t want that to happen.

Major credit bureaus, such as Equifax, TransUnion, and Experian, have reported medical collections, even when debts were eventually paid.

So here are three key changes.

  • Paid medical collection debt will no longer appear on credit reports from July 1.
  • Unpaid medical debt will take a year, rather than six months, to be reported, beginning July 1.
  • In early 2023, medical collection debt under $500 will be excluded from credit reports.

But how is it beneficial for you?

It’ll remove 70% of medical collection debt from consumer credit reports. According to an estimate, it’s suspected to be around $88 billion. This removal will mean relief to millions of Americans.

It’ll increase the credit score of many people.

Completely Free Credit Reports

COVID-19 had a huge impact on everyone. Many businesses completely shut down, and millions of people lost their jobs.

There was something that needed to be done quickly to help people.

That’s why, during the pandemic, lenders and creditors offered flexible payment options. Credit bureaus also stepped up and took effective measures to help consumers stay on top of their credit health.

They provided free weekly credit reports to all U.S. adults. As of October 2023, you now have permanent access to these free weekly reports.

How can it help you?

It helps you stay informed and vigilant about your credit.

Changes To the FICO 10 and FICO 10T Model

There are many credit score models that FICO offers. But you should know about the latest models, FICO 10 and FICO 10T, introduced in 2020. The T stands for trended data, and here’s what you need to know.

  • FICO 10 is like a snapshot and has no trended data.
  • FICO 10T is “trended data,” which is like a short video.
  • FICO 10 can cause your scores to drop for using too much of your available credit.
  • FICO 10T can cause your scores to drop because your past “short video” shows consistently high statement balances.

What does it mean for you?

It means you must manage credit wisely to maintain a high credit score.

Adding Rental Payment History

It is among the new credit score rules. Historically, rental payments have never been part of the credit scoring systems.

But now it’s changing.

Credit scores typically rely on factors like credit card, loan, and mortgage loan history. Your payment history, monthly rent, etc, will be added. Do you know how this is beneficial?

It gives a comprehensive view of an individual’s financial responsibility. It shows that you have a great track record, which can enhance your creditworthiness.

So it’s a great thing for tenants who pay rent on time. If you have a limited credit history, then this shift can greatly help you.

Improving Your Credit Score

If you’re in distress because your credit score is going down, then don’t worry. Here are the top 5 tips recommended by experts. With these tips, you can tackle credit score changes easily.

  • On-time payment of bills.
  • Reduce credit card balances.
  • Check your credit files for errors.
  • Avoid opening too many new accounts.
  • Keep old accounts open for a longer credit history.

For more expert guidance and tips, check out this blog.

These laws are set to change how credit scores are calculated and reported significantly. Understanding these credit laws is extremely crucial for everyone. Knowing these laws helps you make smart decisions about your money. The changes might allow you to improve your credit and avoid problems.

Plus, these laws make sure companies are fair and honest with your credit info. So, if there’s a mistake, you can fix it.

Stay Informed About New Credit Score Rules

These new credit laws tell us how important it is to stay updated regarding the latest changes in the financial world. Your one mistake can lead to a poor credit score, and once you go down that hill, seeking help from financial experts is the only ideal solution.

Jenn Cartwright

Jenn is the lead credit coach and head of customer success at Credit Secrets. She transformed her own credit story from a modest beginning into an inspiring tale of financial triumph using the Credit Secrets program. Originally a customer back in April 2017, she not only soared her scores from the low 400s to the 700s within 6 months using the Credit Secrets program, but also delved deep into the credit cosmos, exploring courses, consumer laws, and even co-hosting webinars with the nation's leading credit expert, John Ulzheimer. Now, she funnels her passion and expertise into ensuring everyone has access to clear, concise, and actionable information to improve their credit scores and unlocking their financial freedom.