A change in the way credit scores are calculated means consumers may soon have an easier time getting a loan and could begin paying lower interest rates on their credit cards.
Fair Isaac, the company behind the widely used FICO credit scores, announced Thursday that it will no longer reduce a consumer's score for late bill payments if those bills have been paid off.
It will also reduce the impact of unpaid medical bills on FICO scores. Under the new model, which will become available this fall, consumers with a median credit score would generally see their score rise by 25 points if their only major late payment is an unpaid medical debt.
"The new ruling looks great," says Credit.com's Gerri Detweiler. "These are changes consumers and consumer advocates have been hoping for for a long time. The one big warning is that these changes won't happen over night."
The changes comes after May report from the Consumer Financial Protection Bureau found that consumer credit scores are "overly penalized" for medical debt, which it said often does not accurately reflect their credit worthiness.
“Getting sick or injured can put all sorts of burdens on a family, including unexpected medical costs. Those costs should not be compounded by overly penalizing a consumer’s credit score,” said CFPB director Richard Cordray in a statement at the time. “Given the role that credit scores play in consumers’ lives, it’s important that they predict the creditworthiness of a consumer as precisely as possible.”