New Rules Will Boost Ailing Credit Scores for Millions

Your credit score may go up soon, especially if unresolved medical bills were keeping it low and preventing you from borrowing at a reasonable rate.

Fair Isaac says changes coming this fall to its new FICO Score take a more nuanced look at unpaid medical bills as well as accounts sent to collection agencies but already paid off.

“The median FICO Score for consumers whose only major negative references are medical collections will increase by 25 points,” Fair Isaac said.

The changes expand banks’ abilities “to make loans for people who might not have qualified and to offer a lower price [for others],” Nessa Feddis, senior vice president of consumer protection and payments at the American Bankers Association, told The Wall Street Journal.

As of July, about 64.3 million U.S. consumers had medical collections on their credit reports, the Journal reported, citing credit bureau Experian. Of 106.5 million total consumers with agency collections on their reports, 9.4 million had no balance. Under the new credit score system, those consumers also will not be penalized.

Starting this fall, delinquent medical bills won’t be reported to credit bureaus for six months, giving insurance companies and you time to pay claims or resolve disputes.

More than half of all debt on credit reports is from medical bills, says the federal Consumer Financial Protection Bureau.

The changes came as a result of an agreement between the big three credit bureaus using FICO scores — Experian, Equifax and TransUnion — and New York Attorney General Eric Schneiderman, Forbes reported.

It will take time for lenders to adopt FICO Score 9 (most use version 8 now) so your higher score, if you deserve one, may not be reflected right away.

But just because the changes may make it easier for you to get a loan doesn’t mean you should load up on debt. One benchmark to watch is keeping your debt-to-income ratio under 43 percent. In most cases, CFPB says, 43 percent is the highest ratio a borrower can have and still get a qualified mortgage based on your ability to repay and with limited fees.

The CFPB gives this example to figure out your ratio:

If you pay $1,500 a month for your mortgage and another $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly debt payments are $2,000. ($1,500 + $100 + $400 = $2,000.) If your gross monthly income is $6,000, then your debt-to-income ratio is 33 percent. ($2,000 is 33 percent of $6,000.)

Interest on debt, of course, also costs you money. A higher credit score often means accessibility to lower loan interest rates. Check here to see how to swiftly raise your credit score. Or see our Solutions Center for Credit Restoration help.

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