The credit industry is necessary; without it we couldn't borrow money to buy homes or cars, and would be walking around with a lot of cash in our pockets, too. Still, it has also long been a problematic industry, rife with practices that didn't make life easy for consumers. The recently created federal Consumer Financial Protection Bureau, which oversees credit-reporting agencies, among other activities, has instituted some welcome changes. Under a major agreement announced this month, the three main credit reporting agencies -- Equifax, Experian, and TransUnion -- have pledged to make changes that could improve your financial life.
First, though, let's see just what kinds of problems needed to be fixed:
- The Columbus Dispatch in 2012 reviewed almost 30,000 complaints filed with the Federal Trade Commission and state attorneys general about consumer credit reports that spanned 30 months. After researching the cases, its investigators found that fewer than half of the complaints had been resolved. (Sadly, the Dispatch also noted, "Consumers said the agencies can't even correct the most obvious mistakes: That's not my birth date. That's not my name. I'm not dead.")
- Early this year, the FTC released results from its latest examination of credit-report accuracy, finding that "most consumers who previously reported an unresolved error on one of their three major credit reports believe that at least one piece of disputed information on their report is still inaccurate."
Clearly, many consumers have been unable to have errors fixed on their credit reports through the usual process. That's a big deal, since our credit scores are based on our credit reports, and those scores greatly influence the interest rates offered when we borrow money. An error or two on a credit report might cost you thousands of dollars if it is falsely depressing your credit score and resulting in a higher mortgage interest rate -- or, worse, resulting in your being denied credit.
The changes and you
So what has changed now? Well, the three big agencies have agreed to some reforms. Here are the main changes you can expect:
- In the past, many requested corrections were not made because the credit agency took the lender's word (that a payment was late, for example) over the consumer's word. Now the agencies will investigate each complaint independently.
- Medical debt, brought on by health setbacks rather than financial mismanagement, has often led to harmful black marks on credit records. Many times, in fact, a late payment by an insurance company, not the consumer, causes the problem in the first place. (More than half of collection reports on credit records are related to medical debt, and it's estimated that a fifth of consumers or more have had their credit score whacked by it.) The new agreement instituted a 180-day waiting period for medical debts to be added to credit reports, during which time insurers can pay up. Also, previous black marks that have been fixed, or are being fixed, will be struck from records instead of lingering for seven years, as they did before.
- In the past, black marks could appear on your record from parking tickets and library late fees, among other things. This agreement will make it harder for that to happen. Credit agencies will exclude debts from your record that you didn't sign up for and agree to pay -- as you do when you borrow via a credit card or bank loan. A loophole remains, though: If such an unpaid fine ends up in the hands of a collection agency, it can still appear on your record.
- While a 2003 victory for consumers resulted in the right to a free copy of the credit report each year from each of the agencies, along with a handy website (AnnualCreditReport.com) at which to request them, the new agreement permits follow-up free reports for those who have filed complaints so they can check to make sure errors have been fixed.
We can expect changes in how the credit agencies operate to start happening within a few months, and to be fully implemented within a few years .
Dealing with credit records and ensuring their accuracy is rarely fun, but now it should be an easier, and fairer, process.