A lowcredit score can hurt your ability to take out a loan, secure a good interest rate, or increase the spending limit on your credit card. Some reasons for a low score are out of your control — such as unexpected medical debt or a lack of credit history. Credit rating agencies are working to improve access to credit by giving people more time to pay medical bills before the debt appears in reports, and by removing other debt completely. They’re also making it easier to count rent, utility payments, and other recurring bills — a boon for those who need credit the most. Here’s what to know: WHAT IS A CREDIT SCORE AND WHY IS IT IMPORTANT? Put simply, a credit score is a formula that lenders use to decide how likely you are to pay back a loan. If you’re considered a risky bet, you will pay more to borrow or may not be able to borrow at all. The factors that go into calculating your score are complicated, and advocates say it’s a positive that ratings agencies have started making it easier for consumers to prove that they’ll able to pay back money they borrow. It’s especially important for so-called “thin file” consumers — those with a lack of extensive credit history, who are often younger or lower income. “I do see that efforts are being made in order to equalize the credit score,” said Rosalyn Glenn, a financial advisor at Prudential who focuses on expanding financial access. “For instance, adding rental payments to credit reports, because there is a segment of the population that rents and does not own. That’s exciting — because the score can give them an opportunity for better rates on things like insurance and loans. I do believe progress is being made there.” WHAT’S HAPPENING WITH MEDICAL DEBT? After conducting industry research during the pandemic, the three most-used credit rating agencies found that consumers with medical expenses were just as likely to be creditworthy as those without. Effective July of last year, paid medical collection debt is no longer included on consumer credit reports, and the time period before unpaid medical collection debt appears is now a year, up from six months. That gives people more time to work with insurance and healthcare providers to pay off the debt. In the first half of 2023, Equifax, Experian and TransUnion will also remove medical collection debt under $500 from credit reports. When Jonnathan Alvarado, 25, was in a car accident this past year, he knew health expenses wouldn’t be the only hit to his finances. A landscaping contractor in Plainfield, New Jersey, who prides himself on careful financial behavior, Alvarado faced knee surgery at the beginning of his busiest work season, which hurt his productivity. Alvarado said he only realized in retrospect the consequences for his access to credit. Even after insurance, Alvarado still owed in the vicinity of $1,200, which he took several months to pay off. During that time, his credit score dropped to 680, still considered good, but lower than it had been. When he finished paying the debt, it jumped to 775, the highest it had ever been. It was only when Alvarado looked into what caused the decline and rebound that he learned the lingering medical debt had […]

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