There is one topic that this blog can always rely on for a huge response from readers: Credit Repair. Major reforms have just taken place in the world of credit scoring, and it is about time. Let me make clear that all of this was the result of a settlement between the credit bureaus and regulators, chief among them the state of New York. Also brewing was federal legislation that would have contained some of the most sweeping reforms since the Fair Credit Reporting Act (1970). This was not (as it might appear to be) a purely magnanimous move on the part of the three credit bureaus.
I have long been a critic of the credit reporting system in the United States, and the incredible amount of power that rests in the hands of the three major bureaus. What are the headline benefits of the reforms?
4 Ways New Rules Can Raise Your Credit Score
1. Items You Did Not Sign A Contract For Can No Longer Be Added To Your Credit Report
Items such as fines, traffic tickets, and other obligations that you did not sign a contract for can no longer be added to your credit file.
2. The Impact Of Unpaid Medical Bills Will Be Reduced
Under the new agreement, credit bureaus will not list medical debt on a credit report until it is at least 180 days old. The idea behind this is that consumers should not be penalized if their health insurance carrier pays legitimate claims late. It has become so commonplace for months to pass before insurance companies pay, consumers end up in collections through no fault of their own. Additionally, the overall impact of medical collections on credit scores will be dramatically reduced. Lastly, once a medical bill is paid, it appears that the item is likely to be removed altogether and have no lasting impact whatsoever on a consumer's score.
3. New Dispute Arrangement To Consider Both Sides
Historically, credit bureaus were not obliged to do much more than to 'reinvestigate' a consumer's claim that an item was inaccurate. In the end, if the creditor replied and confirmed the item, that was the end of the story. Now, the credit bureau must consider the consumer's documentation in making the determination about the accuracy of a given entry. This will require the credit bureaus to act in the capacity of a third party judge considering the two competing stories of both the consumer and creditor. Believe it or not, historically the bureaus could (and did) mostly take the response of a creditor as gospel. Now, a consumer with adequate documentation supporting their dispute, can have an item removed or updated even if a creditor does not agree to the removal.
4. Paid Collection Accounts And Past Due Payment To Disappear?
The new scoring model will reportedly minimize, or completely remove the effect of late payments or collection accounts that have been paid. The details on this element of the plan are still a bit murky, and frankly I have a hard time fully believing this one entirely. This would mean that someone who has been historically and chronically late on their obligations could simply get caught up with everyone, and face little or no consequences, for their months of late payments. Hmmm... I find this very hard to imagine, and as much as I am a consumer advocate, I don't know if this would even be reasonable for the lending community to go along with.
The Credit Bureaus Are Slicker Than Politicians, So Don't Count Your Chickens Yet...
When it comes to the credit bureaus, I am from Missouri (show me and I will believe it). I am more than a bit skeptical of these 'voluntary' changes that appear to be only in response to a wave of new state and federal rule proposals. We will have more information on all of this as the details become more clear. More importantly, we will continue to report on the new rules and kick the tires to see how much of this turns out to be actually put into practice.
Other Articles On Credit Reports and Credit Scoring
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