Credit reports to raise standards to improve accuracy
The big three credit bureaus are raising the bar for accuracy of your credit report and improving the process for disputing errors, in a major overhaul of the credit reporting system announced Monday.
The steps announced by Equifax, Experian and TransUnion -- as part of a settlement with New York's attorney general -- were hailed by consumer advocates as a boon for the roughly 200 million Americans who have a credit report.
"We certainly hope this does a lot for consumers," said Chi Chi Wu, staff attorney at the National Consumer Law Center. "It doesn't take care of every single problem with credit reporting, but it's a huge step."
Among the major provisions in the overhaul, which is called the National Consumer Assistance Plan, the big three credit bureaus will:
- Keep unpaid medical bills off your report for a 180-day waiting period, to allow insurance payments to roll in.
- Listen more closely to consumers' side when they dispute debts reported by "data furnishers" such as lenders and debt collectors.
- Heighten oversight of data furnishers that submit delinquent debts to the credit bureaus.
- Provide a free credit report after a successful dispute, allowing you to verify the correction was made.
- Erase unpaid municipal fines, traffic tickets and other debts that are not covered by a contract or agreement with the consumer.
'Simpler, more transparent'
"The National Consumer Assistance Plan will make [Americans'] credit reporting experience simpler and more transparent," Stewart Pratt, CEO of the industry group Consumer Data Industry Association (CDIA), said in a statement.
The information on credit reports kept by the big three bureaus is the source of your credit score, and the window into which lenders, landlords and even employers look at your financial responsibility. Errors can jack up your interest rates or make it impossible to get a loan, among other problems.
Consumer advocates and regulators have railed at errors and the difficulties correcting them in a one-sided dispute process. In a 2013 study, the Federal Trade Commission found that about 5 percent of credit reports contain errors serious enough to affect your interest rates.
Pressure to change
The industry overhaul comes under pressure from New York Attorney General Eric Schneiderman, and builds on reforms pushed by the U.S. Consumer Financial Protection Bureau.
We certainly hope this does a lot for consumers. It doesn't take care of every single problem with credit reporting, but it's a huge step.
|-- Chi Chi Wu
National Consumer Law Center
"Problems with credit reports routinely block people's access to housing and jobs, particularly low income people and people of color," said Susan Shin, senior staff attorney at the New Economy Project, in an email response to the announcement. "The unfair practices of the big three credit reporting agencies have an outsized impact on the lives of hundreds of millions of people."
Wu called the waiting period for medical debt reporting an important protection. More than half of bad debts weighing down people's credit are medical debt, a study by the federal consumer protection bureau found. But the complexity of medical billing and insurance frequently results in late payments that aren't the fault of consumers.
"A lot of that has to do with the crazy nature of health care in our country," Wu said.
One fraud-fighting provision in the overhaul raises standards for reporting authorized users of credit cards, by requiring that the user's birth date be provided. Information on authorized card users that lacks a birth date will be barred from the cardholder's credit report.
The dispute process for correcting errors -- sharply criticized by consumer advocates -- is supposed to be upgraded under the industry's new procedures.
When you dispute data on your report and send documents to back up your gripe, the credit bureaus will take a closer look at your argument, said Norman Magnuson, vice president of public affairs at the CDIA. The move builds on the bureaus' agreement with federal regulators last year to upgrade their systems to relay consumers' documents to furnishers who supply disputed information.
The bureaus will also monitor furnishers' accuracy and take action when errors are high, according to Schneiderman's office.
The initiative marks the biggest change to the credit reporting system since the 2003 Fair Credit Reporting Act, which entitles consumers to a free annual copy of their credit report and outlined a dispute process to correct errors.
See related: Why the credit report dispute process is broken
Published: March 9, 2015
- Debt-free seniors may find themselves unscorable – Congratulations! You've paid off your mortgage and all other debt. But you may have lost something else in the process: your credit score ...
- Average credit score climbs in Experian study – The U.S. consumer's average credit score rose 4 points in the past year, nearing pre-recession levels, according to the credit bureau Experian ...
- Fraud alerts: Your credit's first (and free) layer of security – A fraud alert notifies lenders that they should take special precautions to verify your identity before extending credit. But it comes with limitations -- and hassles ...