Your Credit Score Could Rise Due To These Major Reporting Changes
Many Americans could potentially qualify for lower interest rates on auto financing, student loans and mortgage rates as the main three credit reporting bureaus make changes to how they do business. The move is being called the most sweeping industry transformation in more than ten years.
According to the Wall Street Journal, Equifax, Experian and TransUnion announced an agreement in May that will make it easier for consumers to take action if they find information in their credit report they believe to be an error – a task previously thought by many to be insurmountable. The agencies will also alter the processing of medical debt, adding a grace period before they will include medical bills in consumer reports.
The overhaul is a result of negotiations between the three credit reporting agencies and Eric Schneiderman, New York Attorney General. After watchdog and consumer complaints, Schneiderman began investigating the bureaus more than a year ago.
Having an error on your credit report could make it harder to get financing for a house or car, or possibly even secure a job, even though you did nothing wrong. Currently, if you have a dispute with a piece of information in your report, the credit rating bureau would contact the debt collector to confirm whether or not it was correct. That’s about as far as the investigating goes. Under the new regulations, a new system of accountability will be set in place to dive deeper into disputes.
Now, when a consumer submits a dispute — including fraud and identity theft — trained employees will review all submitted information and contact the debt collector. Individuals who dispute items in their reports will now get more information and further instructions on what to do if they don’t agree with what they find out. The credit bureaus are required to resolve the dispute even if the creditor says the information is accurate, and they must provide a new credit report to the consumer to show the issue has been addressed and corrected.
Many consumers are affected by credit-report errors. According to a 2013 Federal Trade Commission study, one in five consumers have an error in at least one of their three major credit reports. Equifax, Experian and TransUnion received eight million requests disputing information on credit reports in 2011, according to the Consumer Financial Protection Bureau. These errors can be from identity theft and fraud, such as when a thief opens a credit-card account in someone else’s name or simply from mistakes when creditors accidentally send wrong information.
Giving Americans some breathing room when it comes to medical bills – a growing form of debt — may be an even bigger relief. The three main agencies will give consumers 180 days before they add any debt from medical bills to their credit reports. That time is meant to allow consumers not only time to catch up on their unpaid bills, but to settle any concerns with their insurance company.
Also new, medical bill accounts will be taken off a consumer’s credit report when they are paid by an insurance company — regardless of when they are paid. Previously, negative marks on your credit report could potentially stay there for as many as seven years.
According to the CFPB, past-due medical debt is an issue on the credit reports of 43 million Americans, and medical bills make up about 53 percent of unpaid debt in collection. Credit reporting firms get this information from collection agencies after they receive unpaid accounts from doctors and hospitals. Sometimes this is a result of the insurance company delaying payments, not the fault of the consumer.
In a recent study, the CFPB determined that individuals with medical bills on their credit report were in good standing when it came to paying their other bills in a timely manner. This led the agency to believe that unpaid medical debts don’t mean necessarily make someone a high risk. Fair Isaac Corp., more commonly known as FICO, then changed the way it views late payments that were eventually made, and no longer weighs medical debt as heavily in its formulas for credit scoring.
Also in the agreement, the agencies are not allowed to market credit monitoring services to any consumer during the dispute portion of a phone call, and they have to let consumers know that purchasing a product isn’t required for disputing information.
Some changes in the agreement are expected to take as long as 39 months to implement.
About Credit Scores
Your credit score can make all the difference in getting a high or low interest rate on a loan or even getting approved at all. It can help you qualify to rent an apartment and avoid large deposit fees on utilities. But where does it come from?
The mighty three-digit number is generated by mathematical algorithm using information in your credit report that’s designed to predict risk. Specifically, it’s designed to show lenders the likelihood that you will fall behind on your obligations in the next 24 months.
Fico Scores range from 300 to 850, and the higher the number the lower the assumed risk.
Scores are made up of five major categories, some of which are weighed more heavily than others.
- Payment history: (35 percent) — Your account payment information, including any negative marks.
- Amounts owed: (30 percent) — How much you owe on your accounts and the amount of available credit you’re using.
- Length of credit history:(15 percent) — How long ago you opened your accounts and time since account activity. Having older accounts can be a good indicator of your ability to hold credit, so don’t rush to close them.
- Types of credit used:(10 percent) — The kinds of accounts you have, including revolving and installment.
- New credit:(10 percent) — How often you seek out new lines of credit, including credit inquiries and number of recently opened accounts.
Information such as age, race, address, marital status, income and employment don’t affect your score.
To check for errors in your own credit report, get a free copy at www.annualcreditreport.com, a site created by the credit reporting bureaus and overseen by the government.