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Your Credit and Your Future

For many people leaving bankruptcy, finding the right balance for their credit recovery efforts can be challenging. Like any of us, damaged credit can be a long road if not taken correctly. If you are suffering with credit score scars due to missed payments and delinquent balances there are some important changes coming to the way credit scores are calculated that could actually work for you and not against you.

FICO Scores

Over the years the FICO scoring system has undergone changes to its calculation criteria, many of which worked against us as consumers. The current scoring system is known as FICO 8, which uses aspects like your total debt balance, your length of credit history, your current and past account standings, and any grievances or collections against you. One of the most notable criticisms of the FICO 8 scoring system is how it takes into account old, resolved debts.

Under the FICO 8 system both paid and unpaid collection accounts are used as part of the score calculation. While unpaid collection accounts make sense, why would a paid (therefore resolved) account be included in the calculation? Sure, at one time maybe you did owe money on an account entered into collections, but if it had sense been paid off it makes no sense for that amount to be used towards your total debt balance.

This September, some new changes are coming to the FICO scoring system that could eliminate the use of paid collection accounts as part of score calculation. The FICO 9 system will be rolling out next month for testing and evaluation by the credit reporting bureaus. If the FICO 9 scoring system passes testing consumers could see their scores improve by the removal of the paid collection account stipulations, as well as the use of medical debt balances towards overall scoring.

The removal of medical debt balances alone is expected to bring some big changes for millions of Americans that are saddled with unavoidable medical bills. While this comes as good news to consumers who feel they shouldn't be labeled as a risky borrower over a few medical bills or old, paid accounts; others are fearing a financial back-fire of over lending through poor risk calculation.

Consumers' Credit

Regardless if which scoring system we are being evaluated under the fact is that your credit is important for your financial profile. We all should take a lesson in proper credit use, better money management and the importance of monitoring our credit reports. Old debts, bad debts, too much debt? All of these things can drag down your financial profile. Stay mindful of your debt balances, make sure your credit report information is accurate and dispute any incorrect or misreported information.