If you have ever filed for a complaint about an error on your credit report, then you probably know you have to jump through hoops in order to get it fixed.
A study mandated by Congress and conducted by the Federal Trade Commission, found out that one out of five American consumers has an error on his or her credit report. Twenty-one percent of the American consumers in the study found a “confirmed material error” in at least one of the three biggest credit reporting agencies. “Confirmed material error” means that when such error is corrected, it will change one’s credit report. And we all know how credit reports impact our finances.
The study, by the way, tracked the credit histories of about 200 million Americans, which means that around 40 million have errors on their credit reports.
“The study also reported that 5.2 percent of the representative group found and, with the assistance of the report’s researchers, successfully challenged a mistake so serious that it had lowered their credit score substantially enough to burden them with higher interest rates.”1
Even today, getting a credit report error fixed is a pain. Thankfully, concerns and complaints about these errors have reached the office of the New York State Attorney General Eric Schneiderman, who has recently struck a deal with the three biggest credit reporting agencies (CRAs) that will benefit not just all individuals in the United States.
What are these changes?
Improvements in the credit dispute process
Under the agreement, Equifax, Experian, and TransUnion will improve their dispute resolution process for consumers who have credit reporting errors, as well as those who are victims of fraud and identity theft. With this new change, the credit bureaus will have a more proactive role in fixing credit report errors. Before, they only rely on the lender to resolve a dispute: if a creditor tells them that the information on the credit report is correct, the credit reporting agencies will no longer investigate. Individuals who have undergone a credit disputation understand how painfully slow and frustrating this is. Under the new agreement, however, with the credit agencies’ promise to improve their system, all these will change. CRAs will be hiring employees to implement the changes. Trained employees will be in charge of investigating on a case, despite a creditor’s insistence that a reported information is correct.
Improvements in credit report changes in medical bills
According to the Consumer Financial Protection Bureau (CFPB), about 43 million Americans have overdue medical debts on their credit reports. Not all medical debts, however, are consumers’ faults. Some of those medical debts are caused by insurance companies that delay payments to hospitals and medical professionals. This is unfair for some of us. Luckily, under the new agreement with the New York State Attorney General, credit reporting agencies will have to wait for 6 months or 180 days before updating the information on our credit reports. The 180-day waiting period will the insurance companies to pay the necessary bills. What’s better is that when medical debts are paid by an insurance company, no matter how late it had been, credit reporting agencies will have to remove the negative item from the credit report. Late last year, FICO announced that it will be rolling out changes to their popular scoring model, which is used by the biggest credit reporting agencies. Their new scoring model will not include in its calculation debts in collection accounts and medical debts that were paid through settlement. This change should shift consumers’ mindset from worrying too much about their credit score to simply getting their account paid for less by way of debt settlement.
What’s in it for you?
What is the significance of these changes in the credit reporting industry to ordinary consumers?
To quote New York State Attorney General Eric Schneiderman, “credit reports touch every part of our lives. They affect whether we can obtain a credit card, take out a college loan, rent an apartment or buy a car – and sometimes even whether we can get jobs.”
Like it or not, such piece of paper is an important part of life, at least in the United States. An error, which may influence your 3-digit score has far-reaching effects, that it is only right to have credit bureaus take the matter seriously.
Luckily, changes are happening that will help more consumers become credit worthy again, at a shorter period of time.
However, this does not mean that it is better to just leave an account to become delinquent. It is still our obligation to repay what we owe to our creditors.
Consumers should also be checking their credit reports regularly to make sure that they are error-free because such errors can lead to creditors’ charging more for your credit. And who are prone to committing errors in submitting information to credit reporting agencies? The creditors themselves.