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How could new credit score rules affect homebuyers?

Thanks to newly implemented rules, nearly 70% of medical debts are being dropped from US credit reports, causing increases to some credit scores. Plus, a new credit scoring model is shaking up how lenders might look at debts.

CL

Chelsea Levinson, JD

10/28/2022 · 3 min read

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Key takeaways

  • In early 2022, Experian, Equifax, and TransUnion announced changes to medical debt collection reporting that could cut nearly 70% of medical collection debt from US credit reports. 

  • There’s also a new credit scoring model called FICO10 that could affect individual credit scores by 20 points or more.

  • Homebuyers may see score changes because of these new rules, which may affect their mortgage approvals and interest rate offerings.

If you’re buying a home, you’re probably already aware that your credit score is important. That 3-digit number can help qualify you for a mortgage and affect your offered interest rate. But did you know that credit rules change over time, and that these changes can impact your score? 

Here’s what smart home buyers need to know about new rules implemented in 2022.

The new 2022 credit rules

Earlier in 2022, Experian, Equifax, and TransUnion announced changes to medical debt collection reporting that could affect consumer credit scores. As of July 1, 2022:

  • Medical debt that’s been paid in full will no longer appear on US credit reports.

  • Unpaid medical debt won't appear on your credit report for 12 months, up from 6 months. This gives you longer to settle medical debts before your credit is affected.

  • In 2023, medical debts under $500 will no longer appear on credit reports. 

The three agencies say these rules could remove nearly 70% of medical collection debt from US credit reports. Plus, the removal of these debts could give some Americans’ credit scores a boost. 

There’s a new scoring model, too

And these aren’t the only changes you might notice to your credit score. Back in early 2020, a new scoring model called the FICO10 was introduced. This model incorporates what’s called “trended data,” which means it looks at things like your payment amounts and balances over the previous 24-plus months. This is different from other FICO scoring models that show your current debt levels as a snapshot in time, taken when your credit is pulled. 

With the FICO10 model, your credit score could shift by 20 points or more. 

How the new rules could affect homebuyers

Your credit score affects whether you’ll qualify for a mortgage, not to mention the terms you’ll get from a lender. A higher credit score typically means a lower mortgage interest rate. If you’re buying a home, you might be wondering how your credit score could shake out with these new rules. Well, that depends. But here are a few things to keep in mind: 

  • If a medical debt was removed from your report, you may see some increase in your credit score.

  • If you’ve been keeping your credit account debts low, or paying them off each month, you may see an increase on your FICO10 score. 

  • If you recently paid down a debt, but your account was carrying a high balance for the last two years, you could see a dip in your FICO10 score. 

This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.

CL

Chelsea Levinson, JDAuthor

Chelsea Levinson, JD, is an award-winning content creator with expertise in real estate, mortgage, and personal finance. She has written for top real estate publications like HomeLight and Bigger Pockets, and has created content for some of the world’s most recognizable brands, including Bank of America, Vox, Comcast, AOL, State Farm Insurance, PBS, Delta Air Lines, Huffington Post, H&R Block and more. When she's not writing, you can find her fixing up her cabin in the Catskills.

JG

Jena GreeneEditor

Jena Greene is the Managing Editor at Opendoor. She covers real estate, personal finance, money management, and market best practices. Jena is passionate about empowering people to find their dream homes and making the home-buying process a delightful one.