The leading company which figures credit scores, FICO, is changing the way it determines your credit score. When implemented, the FICO score will not consider accounts that have been in collection after the bill has been paid or otherwise settled. Previously if the bill was in collection and you paid it off, it would remain on your record for up to seven years. In addition medical bills, which have not been paid, will damage your score less severely. Paid off bills, previously in collection, will benefit 9 million people while more than 60 million have outstanding medical debt.
So, this new calculation method will increase scores for people in these categories and should make it easier for them to borrow money. But if you continue to manage your debt poorly, this won’t help you.
The changes will not start until later in the year and lenders still can choose which FICO version to use. Credit cards and auto loans likely will be affected first. Mortgages still use FICO scores two versions old.
How important is your credit score? Immensely important! When I talk to millennials (those in their 20's and early 30's) I say "if you see someone you might want to date, the first question should not be what is your smart phone number, it should be what is your credit score."
Many employers look at your credit score before making a hiring decision. A difference of one point on your credit score could be the difference between a 3.8% mortgage and a 4% mortgage. According to a recent report, people with poor credit pay 91% more for homeowners insurance than those with excellent credit. Those with median credit pay 29% more. Many U.S. car insurance companies use credit-based insurance scores to help determine risk. A low credit score will cost you in multiple ways.
Everyone should know what his or her credit score is. I use Creditkarma.com for a free score; it is not the FICO score but the one from TransUnion. Several other websites provide truly free scores, and some credit cards are now listing your score on the monthly statement.
Your credit score is the score at one point in time; it will go up or down depending on your credit habits. You should know how to improve your credit score. Number one is paying your bills on time (35%). Next at 30% is the level of your debt compared to your debt limit. A $20 charge on a $2000 limit credit card is better than a maxed out card.
One of your top financial goals should be a good credit score if for no other reason than to attract members of the opposite sex.