Even in retirement, your credit report and credit score are important, especially if you plan to take out any loans to buy a home, finance a car purchase or help out a child or grandchild by cosigning for a loan.
Recent developments in the world of credit might affect your score and your ability to borrow money. Here are some of the recent changes you need to know about.
1. Credit report errors are easier to fix
Thanks to efforts spearheaded by the Ohio Attorney General's office, the three main credit-reporting agencies — Equifax, Experian and TransUnion — reached a settlement in March 2015 that makes it easier to fix mistakes in your credit reports. That means if there's an error on your report or out-of-date information, you have a better chance of having it addressed.
Instead of using automated processes to handle all consumer disputes, credit bureaus are starting to use specially trained employees to investigate complaints about mistakes in credit reports in instances where consumers provide written documentation about errors. Consumers will also receive additional information from the bureaus after the dispute has been investigated, including a list of options if they aren't happy with the outcome.
2. More time to resolve medical debt
Under the terms of last year's credit bureau settlement, medical debt — a big source of problems for many older Americans — won't immediately ding your credit reports or hurt your credit score. In the past, if you were at least 30 days late in paying a bill, it could go on your reports as a delinquency and stay there for seven years.
But under the new changes that are being implemented over a three-year period, past-due medical debts won't be reported to the credit bureaus until after a 180-day waiting period. With this restriction in place, consumers and medical providers have more time to work out billing disputes or to ensure that insurance payments have been properly applied.
3. Free credit scores and reports are easier to find
These days, it's easier than ever to get a free credit report or a free credit score, largely because there's more competition in the credit industry. The upshot for consumers is that now, more than ever, they're able to better track their credit reports and credit scores at no cost.
FICO currently remains the most well-known credit score. But more institutions and consumers are also using the VantageScore, which was jointly created by Equifax, Experian and TransUnion. Like FICO, VantageScore is a numerical credit score ranging from 300 to 850 points. FICO and VantageScore use separate formulas to calculate consumer credit scores.
A number of financial institutions — including Ally, Bank of America, Chase and Citi — now offer free FICO scores to some or all of their customers. Capital One and Discover offer credit scores to anyone, free of charge. Consumers can also now get free VantageScores from a variety of websites, such as Credit.com, Credit Karma, LendingTree and Quizzle.
What all this means is that the FICO credit score, while still widely used by banks and lenders, isn't the only game in town. With so much competition in the credit and financial services industry, consumers can go to numerous sources to get multiple credit scores for free.
4. Nontraditional payments, such as rent, are more important
For decades, only traditional loans, such as mortgages, car notes or credit card bills, were reported in your credit files. That's already changing.
Now, nontraditional data, such as routine utility bills and sometimes even monthly cellphone payments, are being reported to the credit bureaus. But the biggest category of nontraditional data being reported is rent payments — a trend that some observers say will become the norm in the future.
"The fact is, rent is often your largest monthly expenditure, and you should get credit for it," says Matthew Briggs, CEO of RentTrack, a company that helps consumers pay their rent online and track those on-time payments. "Both Fannie Mae and Freddie Mac recognize this, too, and are looking at using rental trade lines in their lending decisions. For many, rent-payment reporting is the only way to build credit without debt."
Briggs notes that a study from RentTrack found that the average increase in credit scores for consumers reporting rent was 9 points. For subprime renters (scores less than 650), the average increase was 29 points.
So if you've rented an apartment your whole life and want to buy a home, you may be able to get a loan without being told your credit file is too thin or nonexistent, assuming your rental history is documented.
There's another reason behind the push to include nontraditional data such as rent payments in credit reports: Studies show that this information generally helps consumers demonstrate their credit-worthiness.
"The real value of this data is that it may lift people out of subprime into prime scores," says Barrett Burns, president and CEO of Stamford, Conn.-based VantageScore Solutions, which offers the VantageScore. The second benefit is that it adds another payment account — or "trade line" — to a consumer's credit record, giving lenders more information on which to base their decisions.
Consumers with two or fewer credit accounts have "thin files." Many lenders have higher restrictions on thin-file consumers. And that can hurt older borrowers because people tend to borrow less often as they get older, Burns says.
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