HOW CREDIT SCORES ARE EVOLVING TO IMPROVE ACCESS TO CREDIT

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.

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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 now 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 be 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.”