Starting July 1, buying a home might get a little easier—for some.
According to a recent report, the country’s three major credit-reporting agencies (Equifax, Experian, and TransUnion) are changing the way they calculate credit scores, a move that will boost certain consumers’ credit.
The credit agencies rely on information from public records regarding tax liens and civil judgments. But the system isn’t perfect. Sometimes one person’s score is mistakenly calculated using another’s information, usually due to multiple people having the same name.
To improve accuracy, the agencies will stop listing information from liens and judgments unless they have specific personal data reinforcing the connection between a person and the public record.
Who will benefit?
The new reporting methodology will apply to existing and new records, and will likely improve credit scores that took a hit from erroneous reporting.
According to FICO (a data analytics company that computes your score), roughly 12 million people will see an increase. Of the affected, most people can expect a rise of around 20 points, while a smaller portion will see a bump of 40 points or more.
Why are credit scores important?
A good credit score is essential to achieving some of life’s milestones, such as buying a home. Lenders make up their mind about giving you a loan based largely on your credit score. A higher score shows them that they can trust you to handle money responsibly. Home loans, credit cards, even employment—your eligibility for all of these may be affected by your score.
What determines your score?
Credit scores are determined by a number of factors. Liens and judgments make up only part of the equation. Payment history, debt load, and credit history comprise the bulk of your score. To improve it on your own, always make on-time payments and try to cut down your overall debt.