The three major consumer credit reporting companies— Equifax, Experian and TransUnion have launched an initiative that involves key changes to how credit scores are reported and scored. This is great news in the eyes of the consumer, as some individual credit scores are expected to rise due to these new standards.
According to the Wall Street Journal and FICO data, the initiative is estimated to improve the credit reports of roughly 12 million U.S. consumers, with 11 million most likely seeing an increase of 20 points. Another 700,000 consumers will see an increase of a projected 40 points.
The reform, called the National Consumer Assistance Plan, has been in the works since 2015, and is a combined effort from the bureaus to bring about positive change for consumers.
The main focus of the National Consumer Assistance Plan is to create more accurate reports, as well as provide consumers with an easier process to correct any errors in their reports.
Beginning July 1, the credit bureaus will suppress much of the tax lien and judgement records from credit reports that do not meet credit reporting standards.
In order to report a bankruptcy lien or judgment, a creditor will need a name, social security number and birthday. This will help verify a person’s identity before the credit report is marred, which will in turn create a higher probability of accuracy.
Previously, unsuspecting individuals would receive marks on their reports due to a nonpayment by someone else who had the same name. This inconvenience was frustrating to many consumers, as most weren’t aware until they went to sign a contract, and it would take months to make the correction.
Other credit reporting/scoring changes brought about by the NCAP include:
- Exclusion of traffic fines and parking tickets from credit reports
- Medical debts will not be reported on credit reports until after a 180 day waiting period (allowing for insurance payments to be applied)
- Debt collectors will be required to regularly update the status of unpaid debts and remove those that have been collected
- Consumers who have been victim of identity theft and fraud will received improved, special attention
- Consumers who successfully dispute an error on their credit report can now request an additional free report without having to wait a year
According to Fair Isaac Corp, credit scores hit an all time high this spring, with the average credit score being 700.
The Wall Street journal also reported that the share of US consumers with a score below 600 hit a new low of roughly 20% of Americans. This percentage is down from 20.5% in October and 25.5% in 2010, a positive for the economy.
According to a report by Barclays PLC, more than six million U.S. adults will have personal bankruptcies disappear over the next five years due to falling unemployment and increased financial responsibility since the recession.
The disappearance of bankruptcies along with the rise of credit scores should help provide the United States economy with a positive step forward this year.