Clark Howard

Heres why you credit score may suddenly be on the rise

Americans have witnessed a wholesale rise in their credit scores since new rules went into effect last year forcing the credit bureaus to remove certain collection items for your credit report.

But the even better news is you don't have to wait for rule changes to come to the rescue  if you know how to raise your score by yourself!

RELATED: Clark Howard: Here’s my philosophy on credit cards

New York Fed: 11-point increase in average credit score

Our nation’s consumers have been witnessing a steady stream of changes over the past year that have bumped their scores up little by little, in many cases.

We told you how Equifax, Experian and TransUnion removed most tax liens and civil judgments from consumer credit files in July 2017. Then in April of this year, the three main credit bureaus took it a step further and decided to remove all tax liens.

Simultaneously, the bureaus also have been removing certain collection items from credit reports over the past year under terms of the National Credit Assistance Plan (NCAP) that they agreed to.

The provisions of NCAP really get down to the nitty-gritty of what could be fouling up your credit. For example, if there have been any unpaid gym memberships, library fines or traffic tickets lurking in your life, there’s good news for you: They will no longer damage your credit score, thanks to all the recent changes.

Ditto for some kinds of medical debt that are now being excluded from your reports, too.

Now there's a brand-new report out from the New York Federal Reserve that quantifies the impact of all these changes to Americans' credit scores during the first quarter of 2018.

According to the New York Fed, some eight million people had collections accounts completely removed from their credit reports since the new rules went into effect.

The wholesale boost that’s being seen in people’s credit scores is largely concentrated among those who were on the lower end of the spectrum to begin with.

For example, many of those who saw a 40 or more point increase in their score during the first quarter of 2018 were those who started out at an average score of 529 and ended up at an average of 588.

Of course, a boost of 40+ points is atypical when you look at the big picture — even given all the changes going on the industry.

The majority of people — about half — saw more along the lines of less than a 20-point increase, which is still nothing to sneeze at!

Here a few quick hits from the New York Fed report to give you a better sense of the overall impact:

  • 20% of people saw a decline in credit score, likely because of other factors in their financial lives
  • 20% of individuals with scores under 620 enjoyed a surge that lifted them above the key 620 mark — generally considered the threshold that lifts you out of subprime borrower status
  • 18% of people saw their credit scores increase by 30 points or more
  • An 11-point increase was the average quarterly increase after collections accounts were removed

Take control of your credit score today

Any rise in credit scores is good because it will help borrowers secure more favorable interest rates, better offers for insurance, and more.

But the even better news is your financial future doesn’t have to be controlled by the way the winds of industry policy changes blow. You can take control of your credit future by cleaning up past mistakes today!

According to this infographic from FICO, your credit score is most heavily decided by two factors: How much you owe on your different credit lines (30%) and how good you are at paying those obligations in a timely manner as agreed (35%).

Translation: Be sure to pay every bill on time every month. By doing this, you’ll hit those two important metrics of reducing the amount of debt you owe and paying it down as agreed.

Paying your bills each and every month as agreed is the single most important thing you can do if you want a healthy credit score!

Other factors that have less of an impact — but are still important — include how long you’ve had credit in your life (15%); what kinds of credit you have (10%) and how recently you applied for your last line of credit (10%).

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