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Credit reports and all issues related to it have been trending for quite some time now. After FICO’s proposal to drop medical debt from its credit scoring model in order to help people come out of its vicious yolk, Congresswoman Maxine Waters (D-CA) has come up with a fresh bill in the house. This new piece of legislation is the Fair Credit Reporting Improvement Act of 2014.
From the preliminary reports, the bill is supposed to bring about a clandestine change into every aspect of credit reporting as well as credit scoring scenarios witnessed in the country. According to popular beliefs, the new Act is actually a mixed bag. This is because there are certain clauses that are supposedly beneficial but then, there are some that are contradictory. We can expect radical changes in the way our credit report data are mined, analyzed and shared. Moreover, the role of credit score in our daily lives can also get re-defined.
According to a post by BusinessInsider.Com, “The Newest Credit Reporting Act Doesn’t Have a Chance,” the bill will initiate a spate of considerable amount of opposition and after a close analysis, it must.
Say “Bye” to Existing Credit Scoring Models
Our present credit scoring models would get unreasonably altered by the virtue of this new amended act if the bill becomes federal law. Then it’ll bar all the credit scoring models currently functional in the country from reporting any sort of derogatory credit data into a consumer’s credit report. Credit reporting would be placed under the “Federal credit restoration program.” This clause is particularly perplexing since, at the moment, we have nothing called a “Federal credit restoration program.” The bill has clearly defined that program as “any federal program that assists a consumer to rehabilitate their credit.” Odd.
Moreover, the bill also specifies that the improved credit scoring models would force the lenders/creditors to regard all sorts of hard inquiry like auto, mortgage, student loan, etc., occurring within a span of 120 days as one single inquiry when calculating a consumer’s credit score. Interestingly enough, there is no precedence to this path breaking legislation, as all the credit scoring models used in the country have never treated multiple hard inquiries in this manner. One very large change that would come from this act being passed is that it would ban all 60+ FICO scores and all three VantageScores. The fact is that these credit scoring models don’t analyze hard inquiries as stipulated by the new Act.
Questionable Dispute Resolution Process
Presently, credit bureaus are bound to conduct proper investigations into allegations raised by the consumers with regards to errors in their credit report. Hence, the standard procedure of credit report dispute resolution followed by the credit bureaus is to contact the respective lender/debt collector and find out whether or not the information furnished by them are valid and can be supported with appropriate documents. Until this date, the process of a “dispute investigation procedure” has always been a bone of contention, greatly exploited by some selected consumer advocates who called it bogus or ineffective. At this juncture, the bill would force the credit bureaus to have independent investigations conducted, devoid of any kind of meddling by the furnishing party.
Now, let’s make use of our grey cells and self-evaluate our manner of handling our credit report. First of all, how can anyone expect the credit bureaus to track and report the actual balance on your Chase credit card, for example, or to know if we paid our mortgage on time?
The banks and debt collectors are the main culprits for credit reporting blunders since it is they who provide incorrect data to the bureaus. So, it becomes all the more necessary for us to empower these credit bureaus to hold these banks and debt collectors liable for furnishing misleading information about a consumer. They should be given the provision to validate all records before it actually reflects on one’s credit report.
Changes to Data Retention Limitations
Lastly, the bill will also have to fend off doubts regarding how it would resolve issues related to data retention limitations. All types of credit data and trade lines will be dropped in lesser time than current now if the bill passes. For example, bankruptcies would be dropped from a consumer’s credit report after seven years, whereas all the other derogatory information would be dropped after a period of not more than four years.
The biggest issue with this is the threat of financial fraud as a result of this clause. The bill proposes that all credit reporting agencies delete any adverse item within 45 days of it being paid or settled. What’s to stop unscrupulous consumers from taking out huge loans, defaulting, and just settling for a lesser amount?
In addition to that, those who have suffered a huge financial setback, like a short sale or bankruptcy, and are looking to rebuild their credit, would make them all the more complacent toward their debt obligations and create further financial complications in their lives – something which is not at all healthy for us, given our current socio-economic state of affairs.
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Author Bio – Andy is a financial writer whose articles are based on personal finance. He always has a different take on personal finance issues and works toward generating greater financial literacy in the country. You can find him fielding queries based on money management topics at various online communities and social media platforms. This has helped him make a special space in the hearts of his readers that has only grown over the years.