News from Fair Isaac – the folks who developed the algorithm that makes up your credit score – might mean good things for a good chunk of the readers of this blog.
We may sound like we’re talking out of both sides of our mouth sometimes: first we say that you can rebuild your credit score, then we say that having a low score really doesn’t matter. The truth, as is usually the case, is somewhere in the middle: scores ARE used to make some decisions about credit, and, if you are planning a major purchase (like a house, or a car), you’ll want to have as good a score as you can. And, no matter who you are, you’ll find this nugget to be good news for your credit score.
You can read more about the news in the Wall Street Journal (link to the story here), but here’s the upshot. If you have settled credit card debt or medical debt, these will not have a negative impact on your score. From the WSJ:
[The company] will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency.” – WSJ, August 8, 2014.
One reason for this: more credit can lead to more growth in the economy. And let’s be honest – if you can refinance anything to get yourself an edge, you’re going to need as good a score as you can get.
So FICO has decided to stop “dinging” people who settled – figuring that medical bills might be part of that equation or, let’s be honest, the really lax credit card environment right before the ’08 implosion.
Guys like Dave Ramsey will tell you that the credit score is an “I Love Debt” score. But for those of us who are not there yet – and who are putting as much away, looking for every edge we can find – this is going to have at least a little positive impact.
Heck, even if you get a 10- or 20-point bump out of this news, it can possibly lead to a lower interest rate on your mortgage, or the chance to refinance your auto loan (if you have one).
And, from our “a little here, a little there” mantra, it’s definitely good news for your credit score, and your long-term financial well-being.