Personal Finance

Your credit score may have just gone up. Here's why.

Key Points
  • Your credit score might have gotten a boost recently.
  • That's because the three major credit reporting companies are doing things a little differently.
  • Here's what you should do if you find yourself with a higher score.
Credit scores on the rise thanks to changes at credit agencies
Credit scores on the rise thanks to changes at credit agencies

Your credit report might be getting a makeover.

And the three-digit credit score we all carry around, which can determine how likely we are to get a favorable loan to buy a house or a car, could be moving up as a result.

The reason behind the potential boost is a change in the way the three major credit rating firms deal with negative credit information, including unpaid bills and debts.

Some of new practices by Equifax, Experian and TransUnion include more updated reporting, such as noting when an overdue balance has been paid, along with the exclusion of certain debts and items of questionable accuracy.

"To the extent that the bureaus are looking and seeing what's accurate and cleaning up the report, it can improve family financial security," said Caroline Ratcliffe, a senior fellow at the Urban Institute, a nonpartisan think tank.

Library fines and traffic tickets are also being scrubbed. Medical debts that have been or are being paid by insurance companies will disappear from profiles.

In response to these changes, Americans' credit reports are already showing fewer blemishes and scores are rising.

In June, the number of individuals with a collections account on their credit report fell to 25 million, down from 33 million the previous year, and the total collections balance reported on accounts declined by about $11 billion during that time, according to the Federal Reserve Bank of New York.

In addition, some people might have seen their scores take a jump earlier this year when the three major credit companies scrapped tax liens from their reports.

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You can see if your score is higher for free on websites like Credit Karma or Credit Sesame.

If it has, resist the urge to go deeper into debt or take a break from checking in with your score.

"Anyone who has experienced a jump in their credit score resulting from these changes should take advantage of the momentum and strive for even more progress toward improving their credit health," said Bruce McClary, vice president of communications at the National Foundation of Credit Counseling.

Consider calling your bank or credit card company and negotiating a lower interest rate. Doing so can result in major savings.

For example, if you have $10,000 in credit card debt with a 25 percent annual percentage rate, you'll have paid around $2,500 in interest over the year. But if you could get that rate down to 18 percent, you'll pay $1,800 over 12 months, and save yourself $700.

You may be paying off your credit card debt wrong—here’s the best way
You may be paying off your credit card debt wrong—here’s the best way

You might also consider making other financial moves with that better score, such as refinancing your car, taking out a new loan for a mortgage, checking insurance rates or getting a better credit card, said Kimberly Palmer, personal finance expert at NerdWallet. However, you'll want to be strategic, she added.

"Every application can cause a small ding to your credit," she said. "And if you are planning a big purchase like a car or a home in the next six months, hold off on credit card applications."

To keep your score moving up, pay every bill on time and try to keep your credit utilization low, she said.

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