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Credit system changing July 1

By Philip Tirone

As of July 1, tax liens and civil judgments will no longer impact a person’s credit score, as calculated by the three major credit agencies: Experian, Equifax, and TransUnion.

This change to the credit-scoring formula is a result of a settlement between the credit-scoring bureaus and thirty states: States said that liens and judgments were often erroneously appearing on the wrong people’s credit reports, which was hurting their ability to access credit and hiking their rates on homes, insurance policies, loans, and credit cards.

According to FICO, this change means that about 11 million people will see their credit scores increase by about 20 points, so if you have civil judgments or tax liens on your credit report, you may have seen your score jump on July 1.

This might be a good time to review your interest rates and ask your credit card companies, mortgage lender, auto loan lender, or insurance carrier to review your rate and see if you qualify for better terms.

Here are some things to keep in mind when asking your lenders to review your terms.

Lowering Your Credit Card Payments

When your credit score improves, call your existing credit card companies and ask them to re-run your credit report to see if you qualify for a lower-interest or lower-fee credit card. You can also shop around to see if you can find better terms from other companies.

If you choose this option, be sure to apply for new credit cards before you close your older cards. Once you are approved for credit cards with better terms, call your credit card companies with the higher fee and close them.

Anytime you close a credit card, remember that your credit score will drop temporarily, but don’t worry: Your credit score will rebound quickly.

Keep in mind, though, that if you plan on making a major purchase soon (car or home), you should not apply for new credit cards or close your existing ones until after you have made the purchase. Also, remember that 46 percent of credit cards have a negative impact on your credit score, according to a Federal Reserve Board Study.

You can find credit cards that will help your credit score by visiting www.720CreditScore.com.

Lowering Your Installment and Car Loans

If your credit score improves, you might as well call your car lender, have them run your credit and see if they would be willing to refinance your car at a lower interest rate. (You can also submit your name at www.720CarLoan.com, and we will have a lender call you to review your terms.)

It bears noting that anytime a lender runs your credit score, your score will drop temporarily by a couple of points. Don’t worry: It will start to climb and rebound entirely within six months.

Refinancing Your Home Loan

If you have a home loan that you received when your credit score was low, and your score has since recovered, call your lender immediately to see if you could refinance to a lower rate.

We recommend calling:

  1. The bank from whom you received the initial loan, as it will most likely refinance for a lower fee.
  2. A nationwide bank (like Bank of America, Wells Fargo, or Chase), as nationwide banks have the best interest rates.
  3. A mortgage broker, who will be the most flexible.

By checking all these options, you will be able to find the best option, and, depending on how high your score has climbed, you could save hundreds and hundreds of dollars per month.