Big changes are underway with regard to credit reporting, and those changes will impact how credit scores are calculated. These changes appear across the board to be good for consumers.
The reform is a voluntary effort by the 3 major credit bureaus—Experian, Equifax, and TransUnion—and it’s called the “National Consumer Assistance Plan”.
This idea has been in the works for years. In 2015, the bureaus agreed to work together to improve credit reporting for consumers. The improvements are focused on increasing accuracy of credit records and helping consumers understand their credit reports.
Among the key changes under the NCAP:
- Removing some tax lien and civil judgments from credit reports if they don’t meet credit reporting standards.
- Medical debts won’t be reported until after 180 days late, to give insurance payments time to be applied.
- Involuntary debts (like traffic fines & tickets) will not be included on credit reports
- Disputing credit file information will be improved, particularly for victims of fraud or ID theft
- If a consumer disputes information on a credit report, s/he will be able to order another free report right away without having to wait a year for their next free annual credit report.
These changes are being phased in over a 3-year period, culminating in 2018. The next round of changes will happen on July 1, 2017—those changes include changing the way tax liens and civil judgments are reported. It’s expected that civil judgments will be less likely to appear on a consumer’s credit record.
This can only be good for consumers, but not everyone is happy. The Mortgage Banker’s Association is concerned that removing most tax liens and civil judgments will make it harder for lenders to evaluate applications for home loans.
Ultimately, these changes will help consumers ensure accurate and fair credit reports. If anything, we hope credit bureaus will go even further; consumers without a credit record but with a good history of paying rent and monthly bills should have that positive payment history reported. It will be easier to give deserving first-time borrowers a chance if their credit report shows they’ve never missed a payment toward a cell phone bill or utility bill.
For more information about credit reports and scores, check out our “Understanding Your Credit Reports & Scores” workbook, available as a free .pdf download. If you have any questions about your credit, call us today to talk to a certified credit counselor.