All three Credit agencies, Equifax, Experian, and TransUnion changed the formula they use to calculate your FICO score on July 1, 2017. The result? A boost in the credit scores of about 12 million Americans (about 6% of consumers who have credit scores) by 8-20 points. The changes reduced the weight of medical bills, tax liens, and civil judgments. 

FICO is an acronym for Fair, Issac and Co., (FICO) the data analytics company that rates credit. They are separate entities from the reporting agencies making the changes. The changes were a part of the trio’s jointly developed National Consumer Assistance Plan. The joint effort was launched in 2015 as part of a settlement with 31 states that mandated better credit report accuracy and transparency.

While removing adverse information benefits debtors, critics warned that changing the scores could provide a false image of creditworthiness. The FICO score is used to determine terms for loans and credit of every type – ranging from auto loans and mortgages to personal loans, lines of credit and credit cards. It is an indicator of the borrower’s ability to repay a debt. In removing information about health expenses and past defaults, credit agencies may be painting a rosier picture of borrowers than is deserved.

The changes had been underway since July 2016. The credit agencies were given three years to roll out all of the changes advised through the new policy. The changes had been spurred by regulatory actions for increasing the accuracy of reporting in credit reports. Groups like the Consumer Financial Protection Bureau had noted that inaccurate information can affect job applicants and housing choice. The changes made to the credit scoring methodology are part of an implementation of new guidelines set forth for credit agencies. 

There is validity to views by both the critics and supporters of the score changes. Civil judgment data will only be removed in instances when there is missing information like names, addresses and birth dates. In 2011, more than 8 million complaints about incorrect information were received by the three major credit bureaus. While removing some adverse information gives scores a boost, an individual’s entire credit history is still being reviewed and weighted for delinquencies and defaults. Payment history is still an important part of how a credit score is calculated – weighted at 35%.

Consumers should check their credit reports annually for accuracy, which they can do for free. Consumers also should keep in mind that not all “free” credit scores are the same or free.

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