Millions of consumers’ credit scores have increased following an overhaul in the way the major credit report agencies factor in negative information about their histories.
More than eight million consumers saw collection events struck from their credit records this week, the Wall Street Journal reported. In that report, the New York Federal Reserve said that consumers who had at least one collections account removed from their credit report have seen an 11-point increase in their score.
The changes were made due to criticism from numerous quarters that people’s credit scores are prone to errors due to collection events, which results in many potential borrowers being unfairly denied access to loans.
The main credit reporting agencies Equifax, Experian and TransUnion therefore all agreed to revamp their reports, following a 2015 settlement with state attorneys general on the matter. That agreement entailed the reporting agencies removing some non-loan related items that might have appeared on people’s reports, such as library fines, gym memberships and traffic tickets. The agencies also agreed to remove medical debt collections that have been paid by a consumer’s insurance provider.
The majority of consumers who benefited from the recent changes are those who had credit scores below 660 before the collection events were removed, according to the New York Fed.
The news may create an opening for some potential home buyers, as an improved credit score can be a big factor in mortgage providers’ decisions on whether or not to grant cheaper mortgage rates.
And studies suggest that even a small improvement can make a big difference to loan affordability. For example, Lending Tree recently reported that consumers who increased their credit score from “fair” (580 to 669 points) to “very good” (740 to 799 points), could save as much as $29,106 in mortgage costs over the lifetime of a loan.