Changes to Credit Reports & Scores Change the Game for Consumers

Guest Writer: Rod Griffin | Director, Consumer Education and Advocacy | Experian

Experian estimates more than 100 million people have thin credit files. As a result, they may not qualify for traditional, low cost financial services, could face higher security deposits for utilities or even pay more to secure an apartment lease. In fact, research by Credit Builders Alliance shows that having little or no credit history can cost a person more than $200,000 over their lifetime.

At Experian, we recognize that a strong credit history and good credit scores are keys to unlocking a successful financial future. This is why we are constantly developing new innovative services to give people greater control over the information in their credit history, and to help them get credit where it is deserved. One example of this is Experian Boost. It’s also why we are passionate about educating consumers about credit reports and scores. Education is a critical step in maintaining and improving financial health.

Over the course of the last several years, credit reports and scores have undergone considerable change. Many of the changes help consumers who have been struggling to recover from past financial challenges. Here are just a few of these key changes to credit reports and scores.

As part of an industry-wide initiative, all public records, except for bankruptcy, have been removed from credit reports. That includes:

• Unpaid tax liens
• Paid tax liens
• Civil judgments
• Parking tickets
• Library fines

Library fines and parking tickets were removed many years ago, but I still regularly receive questions about them, and unfortunately still read media reports referencing them. Removal of public records may have resulted in immediate increases in credit scores for many consumers.

Credit scoring systems evolve as consumer credit behavior changes. The newest FICO and VantageScore models now exclude paid collections from the score calculation. Their research now indicates that a paid collection has little or no impact on the predictiveness of those scores. Other factors now may way more heavily, however.

As a result, paying off a collection account could raise credit scores as soon as the status is updated in the credit report. Account status, along with other account information, is reported about once a month. Depending on when the account is paid off, at the beginning of the payment cycle, or nearer the end, will affect how soon the collection agency updates the payment status. For that reason, we always recommend allowing 30 days for the change to be reported and updated.

Paying off a collection account has always been beneficial over time. Now that paid collection could make a significant impact almost immediately.

Experian Boost now gives people the ability to add their positive telecom and utility payments to their credit reports. Since its launch just over six months ago, scores have been boosted by more than 11 million points! It is a truly groundbreaking and industry-changing service that for the first time puts people in control of information included in their credit histories.

In the past, utility and telecom information was not routinely reported. In fact, state regulatory agencies often prohibited reporting positive information. Negative information could appear, hurting consumers’ credit scores, but positive information wasn’t added to help them. Experian Boost changes that.

With a consumer’s permission, Experian will capture the positive utility or cell phone payments specified by the consumer from their bank account each month and add it as an account to their credit history. Because the payments are added directly to their Experian credit report, any scoring system that incorporates the information will be able to use it in the score calculation.

The service is provided only with permission of the consumer. If they decide they want Experian to stop collecting the information, all they need to do is tell us. We’ll remove the information from their credit report and no longer collect it.

Consumers with thin credit files and credit scores below 680 will benefit most from Experian Boost. And, those are the people who need it to work for them. What our research has proven is that just because a person has a short credit history, it doesn’t mean they aren’t a good credit risk. Experian Boost helps them establish additional credit history, improve their credit scores and break through barriers created by lack of a traditional credit report.

Experian is seeing credit scores increase for two out of three people who enroll in Experian Boost. The average increase is more than 10 points. For people with thin credit files the average increase is 19 points. That can be the difference for a person in breaking a cycle of payday loans and predatory lending and achieving their financial goals.

It’s a game-changer.

To stay up to date on other ways to maintain and improve access to credit, visit the Ask Experian blog or tune into our weekly Credit Chat on Twitter.