How credit score changes affect millions of consumers – and maybe you, too


Credit score changes aren’t always a good thing.

But sometimes they are.

You might have noticed that recently if you are among about eight million Americans with credit score changes resulting from a new rule implemented last year affecting the way credit bureaus Equifax, Experian and TransUnion report collections accounts.

It is good news for most, although the credit score changes are relatively small on average.

credit score changes

In 80 percent of those cases, about 6.4 million, credit scores have improved, according to a report on the National Consumer Assistance Plan (NCAP) from the Federal Reserve Bank of New York. The other 20 percent, about 1.6 million, actually saw their credit scores decline, although the bank said the likelihood was that the decrease reflected “worsening of other negative aspects of their credit history.”

“Because the vast majority of people in this group had very low credit scores and flawed credit histories … the effect of these collections accounts being removed was modest overall,” said the report’s authors, all of whom are part of the bank’s Research and Statistics Group.

The credit score changes involve removal of tax liens, medical bills and civil judgments.

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The most-common impact of the credit score changes was no change or a small credit score increase, the report said, an average 11-point increase during the quarter collections accounts were removed. “About half saw an increase of less than 20 points,” the authors reported. That may be less than the decrease a consumer with a 660 credit score would see after taking out a $20,000 auto loan – the average price of a used car – based on a sample case using a credit score simulator at CreditRepair.com.

But that also means credit score changes for more than three million consumers actually were more than 20 points, and about one in five received a credit score bump of more than 30 points.

In many instances, however, the credit score changes weren’t enough to lift consumers out of the lowest credit-score categories, bad (below 600) and poor (600-649) reflected at Credit.com. The Federal Reserve Bank authors used a 620 credit score as the cutoff for bad credit.

“Those who saw the largest boost to their scores were generally those with initially very low credit scores,” the report’s authors wrote. “Only 20 percent of the individuals with scores under 620 saw enough of an increase to lift them above the 620 mark.”

For example, consumers who saw a 40 point or greater increase in their score began with a 529 on average, and ended with a 588 on average, according to the report.

The Consumer Financial Protection Bureau earlier said it expected 17 percent to change credit bands.

New credit report rules

  1. Credit bureaus are required to provide more frequent, detailed and accurate reporting of collections accounts, including when those accounts have been paid.
  2. The bureaus are prohibited from reporting debts that “did not arise from an agreement to pay” or from medical collections less than 180 days old.
  3. Collections accounts that did not arise from a contract or agreement to pay must be removed.
  4. The credit bureaus are permitted to report an account only when there is sufficient information to link the account with an individual’s credit files, requiring a name, address, and some other personally identifying information such as a Social Security number or birth date.

“These borrowers will certainly benefit in the long run from the cleanup of their credit reports, since higher scores are associated with better access to credit, to the job market, and even to the rental housing market,” the authors concluded in their report.

“But the immediate impact of the removal of collections will be muted if the [consumer’s] credit record continues to be tarnished with other negative information,” the authors wrote.