If you're looking to borrow money, you might be in luck.
As of July 1, your credit score—a three-digit number from 300 to 850 that measures your creditworthiness based on your history of paying back what you’ve borrowed—may have risen up to 20 points. (Here’s how you can improve your credit score.) Or to be more accurate, one of your credit scores may have risen. You see, you don’t have just one credit score. You have at least two, if not more, although the most common are “FICO” (which is computed by the Fair Isaac Corp.) and “VantageScore,” which is computed by the three major credit bureaus, Equifax, Experian, and Transunion.
The change came in response to a report issued in March by the Consumer Financial Protection Bureau, a government agency created after the 2008 financial crisis to protect consumers from unfair, deceptive, and abusive lending practices. The report pinpointed a number of problems in consumer credit reporting, the most common and perhaps most vexing of which is incorrect information. In fact, the Federal Trade Commission estimates that one in every five Americans has a mistake on their credit reports, and one in five of those has had their credit score drop as a result, according to Sean Coffey of the California Reinvestment Coalition. As a result of the changes implemented, seven percent of the population will have a judgment or lien removed from their credit file, resulting in a VantageScore credit score boost of up to 20 points.
Why does your credit score matter?
When you apply for a loan, the lender will request your credit score. FICO is used most often, and especially in mortgage lending, explains Matt Hackett, operations manager at Equity Now, a New York direct mortgage lender. (Here are the surprising costs first-time home buyers need to be aware of.) But as many as 2,400 lenders use your VantageScore. And some lenders use both FICO and VantageScore. Of course, it’s not only lenders who see your credit score; it’s also potential landlords, insurance carriers, phone companies, and employers. The point is: your credit score matters, and that includes your VantageScore, which is the one that may have changed as of July 1. That’s when Equifax, Experian, and Transunion implemented changes to their credit-reporting methods and standards.
An extra 20 points is a very big deal for consumers, according to Alexis Moore, an attorney who works with clients fighting to have inaccurate data removed from their credit reports. “A 20 point increase could mean that someone who would have had to pay a down-payment on a car lease won’t have to,” she says. “Twenty points can be enough to move you from one credit tier to another,” agrees Gerri Detweiler of Nav. “It can take you from subprime to offprime, for example, which can save you significant money. On a $200,000 mortgage, it could be a difference of $18,412 over the life of the loan.” Simply put, “Twenty points can make all the difference in the world to someone trying to get a mortgage, literally the difference between qualifying and not,” says Corey VanDenBerg, a lending officer at The Farmers State Bank in Brookston, Indiana. (If you’re in the market to buy a home, remember these 15 questions every homebuyer should ask.)
On the other hand, “if your score is 800 and it goes up to 820, it won’t make much of a difference because you’re already going to be getting accepted at attractive rates with either of those scores,” notes Adam Jusko, Founder and CEO of CreditCardCatalog.com. However, for someone who’s been working on improving their credit, a sudden 20-point increase could be “just the thing” to keep them motivated to behave responsibly as a borrower.