How new method of calculating credit scores impacts you

By  | 

RADFORD, Va. (WDBJ7) Changes are coming to the math behind your credit score. Formulas that determine your score are getting a big overhaul that may make you think twice about your spending habits.

Most college seniors are keeping a watchful eye on their scores before entering a world where a good score means everything.

"I got hired for my post-graduate job about two months ago and immediately started looking," Cory Rowan, a senior at Radford University said.

Rowan is searching for a place to live in Richmond. His parents have encouraged him to watch his credit behavior and not rack up much debt.

"I started looking into my credit score, what am I going to be making, what am I going to be able to afford?" Rowan said.

He says he's always made credit card payments on time and tries not to overspend.

Paying down debt will help credit scores under the new methods.

"So now it is very important for you to pay attention to what you do on a month-to-month basis because now the data can be incorporated into your credit score," said Feifei Zhu, a Radford University assistant finance professor.

A person who is paying down debt is more likely to be scored better than someone making minimum payments. Also, keeping credit card accounts open may now lower scores, as well as having excessive credit card limits.

"Before, people just want to pay minimum payments. That's small. It's already a bad idea because of interest but now it's an even worse idea because those kind of people will be treated differently or even more negatively than the people who actually pay the debt in full," Zhu said.

On the flip side, civil judgments, medical debts and tax liens will no longer affect scores.

These changes won't take place until later this year. They were enforced by VantageScore, a company created by three credit bureaus.