This year, major changes hit the credit reporting industry that could end up boosting credit scores for millions of Americans, increasing their access to credit.
From allowing folks to self-report positive rent and utility payments to the major credit reporting bureaus to paid medical debt coming off credit reports, these improvements will help many build or rebuild their credit worthiness.
That means more people could end up getting lower interest rates, save on a home or car purchase, and better navigate other financial milestones in their lives.
Here's what happened in 2022.
Credit scores and mortgages
The Federal Housing and Finance Agency (FHFA) announced that it would allow lenders to use new credit scoring models FICO 10T and VantageScore 4.0 to qualify borrowers looking to take out a mortgage or refinance backed by Fannie Mae and Freddie Mac.
The new models improve credit accuracy by taking into account new payment histories for borrowers when available — including rent, utilities, and telecom payments, according to the FHFA. Under FICO 10T, trended data, which considers a historical snapshot of your credit balances over the last 24 months, would also be included so lenders could more accurately measure credit risk.
According to VantageScore, the update to the credit scoring models would benefit for borrowers, especially by expanding financial inclusion among creditworthy consumers who have been historically underserved. Under the VantageScore 4.0 model, an estimated 10.7 million more people could qualify for mortgages, VantageScore found, including 4 million minority borrowers.
“The models bring improved accuracy and a more inclusive approach to evaluating borrowers,” FHFA Director Sandra Thompson said in a news statement.
However, it will take time for lenders to implement these new scores, which thee FHFA called a "multiyear effort."
BNPL and credit reports
If you used buy-now-pay-later loans — known as BNPL — this year to make a purchase, your payments are now recorded on your credit report.
A year ago, Equifax became the first major credit bureau to announce that it would begin to record BNPL loans on consumer credit files in 2022. TransUnion followed suit in February, and introduced a new tool allowing users to add their BNPL payments to their credit history.
Experian also completed its BNPL Bureau infrastructure earlier this year, which would offer a comprehensive view of consumer payments to add transparency to credit behaviors. Currently, the agency's primary focus is to "ensure BNPL providers can easily report information while making more BNPL-reported tradelines visible on the Experian report," an Experian spokesperson told Yahoo Money.
According to the three major credit bureaus, recording on-time payments could potentially help consumers build or rebuild credit. But on the flip side, missing payments can hurt a person’s credit.
Consumers with thin credit files consisting of two or less accounts or had young credit files – where history was less than 24 months old – saw a FICO score increase 21 points when positive BNPL payments were included, according to Equifax. Those rebuilding credit saw an increase of 13 points on average.
“Consumers can build their credit profiles by showing responsible and on-time payment history over time, and BNPL is another way that consumers can do this,” chief product officer for U.S. information solutions at Equifax, Mark Luber, previously told Yahoo Money. “By reporting BNPL payment history, it adds another valuable tradeline to credit reports, which is particularly important for younger consumers, many of whom are new to credit.”
Credit reports and medical debt
Millions of Americans burdened with medical debt also saw their credit scores improve this year, after the three major credit reporting bureaus wiped the majority of those debts from their credit reports.
“For some people, it could lift their credit score 100 points or more, somebody who otherwise had really good credit and is dragged down by this one instance of medical debt,” Ted Rossman, Bankrate.com senior industry analyst, previously told Yahoo Finance Live. “And that's really emblematic of what's happening here.”
Experian, Equifax, and TransUnion began to remove all medical collection debt tradelines that have been paid from consumer credit reports on July 1. Additionally, the time frame before unpaid medical collection debt appears on a credit report was increased from six months to one year, giving folks more time to address their debt before it was reported on their credit file.
The changes precede an additional measure set to occur in the first half of 2023 — the removal of medical collection debt with an initial reported balance of less than $500 from credit reports.
Relatedly, VantageScore decided to stop counting all medical collection data — regardless of amount owed or age of collection — from its two most recent score iterations, VantageScore 3.0 and 4.0, by mid-October. The move would improve scores of some users by as much as 20 points, the company said.
The largest credit score developer, Fair Isaac Corporation (FICO), also took steps to reduce the impact on medical debt on its newer credit score models.
Rent and credit scores
Through its Experian Boost app, Experian became the first major credit reporting agency to allow tenants to directly report on-time rent payments to their credit files this year – for free – without the use of a third-party service.
By self-reporting on-time rent payments, Experian estimates that some 66% of consumers would see an instant increase to their FICO Score 8 of up to 19 points. Experian said the boost could be a tremendous help for folks who have thin credit files or a short credit history.
“Experian Boost is a tool that empowers people to proactively add positive information to their credit report, to get them in the race with the resources they need to win it. We wanted to incorporate information that’s not typically reported to help people who maybe haven’t had access to credit before,” Rod Griffin, senior director of public education and advocacy at Experian, told Yahoo Money. “Rent is the next step in that journey.”
In a move to further improve equitable access to credit for more consumers, Fannie Mae also launched its Multifamily Rent Payment Reporting pilot program in September. The program is a positive-only system, meaning that if a renter misses a payment, they will be unenrolled to preserve their credit standing or they can opt out of the program should they decide to do so.
According to Fannie Mae, the measure would help Black and Latino/ Hispanic households – who often carry subprime credit scores – expand credit access and opportunities to quality affordable housing.
“By accelerating the adoption of positive rent reporting across the multifamily industry, we will help ensure renter households get the credit they deserve for paying on time each month,” Michele Evans, executive vice president and head of multifamily at Fannie Mae, said in a news statement.
Credit score improvement stalls
The last biggest change to credit scores is how they didn't change at all this year. While credit scores remained at a record high in 2022, according to a study from FICO, they failed to improve versus last year.
As of April, the annual average FICO credit score was 716, the same score registered both in October and April of last year, FICO found. That’s the first time the average score sat still for three consecutive readings since FICO first began tracking the data in 2005.
The figures underscore how the loss of federal and private forbearance programs as well as inflationary pressures have taken a toll on Americans credit score gains – particularly on folks with lower credit scores.
Households with the lowest credit scores – between 550 and 599 – saw their average scores jump by 20 points from April 2020 to April 2021, the largest improvement across all credit score tiers. However, within the last year, their credit scores only improved by 7 points, returning to pre-pandemic trends.
“There's clearly been a pause in the trend upwards in score,” Ethan Dornhelm, vice president of scores and predictive analytics at FICO, previously told Yahoo Money. “The question now is: Is that just a temporary pause and then the trend will continue? Or is this some kind of inflection point driven by the combination of the pandemic era, mitigation factors sort of starting to ramp down coupled with some economic headwinds like inflation?”
We’ll find out next year.
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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