American consumers have long complained errors
on their credit reports
and the inability of credit bureaus to address these issues Errors
. Far too often, people are penalized for errors made by credit bureaus or data providers, and irrelevant information, such as job loss or illness, that does not predict credit default
. This can prevent people from getting mortgages, good interest rates on car loans or credit cards, or even a job.
We’re past the tipping point for an overhaul, but clearly we can’t count on the credit bureaus to overhaul. The latest news from Equifax should push Congress and regulators to finally implement the fixes that consumers and advocates have long been calling for. This means making credit reports and credit scores fairer, more accurate and more transparent.
The big three credit bureaus, which create and host credit reports without our consent, act as de facto gatekeepers to much of the financial market. Credit scores, which lenders use to determine our creditworthiness when we apply for mortgages, loans and lines of credit, are derived from information on credit reports
and calculated using non-transparent algorithms
These credit bureaus
are required under the Fair Credit Reporting Act (FCRA) to “follow reasonable procedures to ensure maximum possible accuracy”. However, the Consumer Financial Protection Bureau (CFPB), the federal agency charged with protecting consumers, continues to find that credit reports
include information from unreliable data providers, which can often mean that the information is incorrect and unreliable.
To ensure information ends up on the correct person’s report, the CFPB should require stricter identity matching criteria than currently exists, such as using all nine digits of a social security number to confirm the identity of a person.
The CFPB also discovered poor management of disputes
including failure to review all information consumers have submitted to dispute errors in their credit reports.
Representative Ayanna Pressley Comprehensive CREDIT Act
is the gold standard for fixing the credit bureaus. Among other provisions, it would make it easier for consumers to correct errors in their reports by creating a new right to appeal the results of a credit bureau’s investigation of a dispute.
In recent years, the CFPB has fined the three national credit bureaus – Equifax
and Trans Union
— millions of dollars for using deceptive marketing tactics in the sale of credit ratings.
The Comprehensive CREDIT Act
Task the CFPB with establishing standards for verifying the accuracy and predictive value of credit scoring models. It would also create a new right to a free annual report credit score
from each of the national credit bureaus. This would be in addition to the existing right of consumers to access a credit report
each year with each national credit bureau. Auto, mortgage and private student lenders would also be required to provide consumers with copies of credit reports and scores obtained to make decisions about their loan.
Credit reports are meant to give creditors an accurate picture of whether or not a consumer is at risk in the event of a future default. But too often they include information, aside from errors, that does not predict credit default
or is due to a particular situation — often health-related — that is no longer relevant.
Following the release in March of a CFPB
Medical Debt Report, which found approximately $88 billion in medical debt on consumer credit reports, the three national credit bureaus announced changes to how they will handle medical debt reporting. These changes include not reporting medical debts that have been paid off and, starting in 2023, not reporting medical debts under $500.
While these changes will bring relief to many Americans, CFPB analysis shows that nearly half of people who currently have medical debt
on their reports will continue to be updated after all changes take effect. Since many health issues are beyond our control, medically necessary debt on credit reports shouldn’t just be limited – it shouldn’t be reported or considered at all. The Comprehensive CREDIT Act
would end the reporting of all medically necessary debts.
Public Credit Registry
Finally, it is also worth considering the idea of replacing the private credit Company
oligopoly with a public credit registry
, which would put the needs of consumers ahead of those who purchase their information by prioritizing accuracy and transparency. It could hold companies that consistently provide incorrect or incomplete information liable to fines.
Credit bureaus collect, store and share our data without our permission. It’s time we made them accountable to us, not to the companies that pay them to access our (not always accurate) credit information.