Here’s Why Your Credit Score Might Have Improved This Year
If you’ve been monitoring your credit regularly, or even actively working to improve it, you have probably seen an increase in your credit score. This is likely due to a number of factors, such as paying down your debt, increasing your credit history, and maybe even increasing your lines of credit. However, there’s another reason that your credit might have improved this past year, and it’s unrelated to your good financial habits.
Many Americans will have seen a slight bump in their credit scores this year, due to new credit bureau regulations put into place. This initiative, called the National Consumer Assistance Plan, was put into place in 2015 in an effort to improve credit bureau reporting standards. However, the full effect of the initiative didn’t begin to be felt until March of this year, making the last six months the true litmus test for its impact.
All three of the credit bureaus – Experian, Equifax, and TransUnion – are subject to the new policies and rules put into place by this initiative, which raised credit reporting standards and imposed stricter guidelines. This has helped to eliminate errors in credit reporting that could easily drop one’s credit score by tens of points, as well as ensure that duplicate negative reports never show up.
In addition, there are several new scoring guidelines, which could have also played a role in boosting your score. For instance, things like recent medical bills are no longer included when calculating your overall credit score. Additionally, things like overdue library books and unpaid traffic tickets – while still a legal issue that could result in a warrant – won’t impact your FICO.
The reason that these new, stricter guidelines were put into place is easy to see. Over the decades, our life has become increasingly credit-centered. Our credit histories are taken into account when we go to buy a new cell phone, open a cable services account, and even when we are price-shopping our auto insurance policies. In addition, many Americans use credit cards daily, necessitating that the reporting for this continuous credit activity be as accurate and up-to-date as possible.
By imposing stricter guidelines on the three credit bureaus and their reporting strategies, the National Consumer Assistance Plan has helped to reduce credit-impacting errors. It may even help keep some legitimate, negative reports from ever showing up on your credit.
For instance, credit reporting agencies will now be required to notate when a payment is made on an account. If a debt is not bound by a direct contract or agreement to pay (such as a debt collector who purchases a debt from the original creditor), it will be removed from the credit report. Additionally, if an account does not perfectly match the borrower’s credit file – including their name, address, SSN, birth date, etc. – it cannot be added.
In other words, credit reporting agencies are now required to follow even more strict guidelines for reporting, across the board. This has not only reduced erroneous reports, but there are many borrowers who have likely “lucked out” with the new rules. For them, some legitimate debt may be excluded from reporting or removed altogether, boosting their score.
The average American saw a score increase of 11 points over the last year, due to these new regulations and changes. While this small bump isn’t going to snag you a rock-bottom interest rate or anything – and was largely seen by those who also have other negative reports, making the difference negligible -- it’s still a welcome change for anyone monitoring their credit score. Plus, with these new safeguards in place, it helps ensure that the next time you’re applying for a home mortgage, or some other big financial product, you are less likely to encounter errors or duplicate reports.
It still remains to be seen just how much of an impact this new credit initiative will have on credit scores and improving overall reporting. However, with the new guidelines in place, you can rest assured that your credit report is likely to be the most correct and up-to-date that it’s ever been.