Tags: credit | score | years | utility

LA Times: Congress Is Pondering Ways to Repair Americans' Credit Scores

By    |   Monday, 22 September 2014 02:06 PM

Congress is weighing some changes that could boost the credit scores of millions of Americans, but the outcome is far from certain.

A recent hearing by the House Financial Services Committee focused on a wish list of possible consumer-friendly credit score fixes, the Los Angeles Times reported.

Those potential changes included erasing negative items from credit file in four years instead of the current seven, keeping a record of bankruptcy for seven years instead of the current 10 and broadening the kinds of bills that credit agencies monitor to include utility, rent, cable and mobile phone payments — not just installment debt such as credit cards and mortgages.

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"Millions of Americans have stakes in the rules governing credit — especially people who could use a little credit help to qualify for a mortgage," the Times said.

Rep. Maxine Waters, D-Calif., said that amending the federal Fair Credit Reporting Act to retain adverse items for four years instead of seven would conform to practices in other major economies. In Sweden, the standard retention period is three years and it Germany, it's four years, she said.

Besides, Waters asserted, "the predictive value of most negative information contained on a credit report gradually diminishes after two years."

However, the credit report industry cautioned that eliminating such information too early would harm lenders' ability to evaluate true risks posed by loan applicants and could ultimately harm both lenders and borrowers, the newspaper noted.

Stuart Pratt, chief executive of the Consumer Data Industry Assn., testified at the committee hearing that although a few developed countries have more lenient rules than the United States does, 82 percent of credit systems worldwide require credit bureaus to retain negative data for four to 10 years.

Meanwhile, a witness for the National Consumer Law Center testified that it would actually be a mistake to include utility bills in credit reports because some consumers tend to pay their utility bills late in favor of paying other bills such as rent first.

"Bottom line from the hearing: Congress is beginning what could be an important long-term review of credit reporting and scoring system practices. But figuring out how to treat everybody fairly could be a challenge," the Times said.

Fair Issac Corp., originator of the FICO score used by most credit reporting agencies, will switch to a new scoring method known as FICO 9 for the major credit bureaus this fall.

The favorable aspects of the switch are that some non-traditional items such as rental history will be taken into account, medical collections will have a smaller impact and paid-off and settled collections will no longer count.

However, lenders will still be able to decide whether they want to use the new FICO scores, and paid-off and settled collections data will still be available for viewing.

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Congress is weighing some changes that could boost the credit scores of millions of Americans, but the outcome is far from certain.
credit, score, years, utility
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2014-06-22
Monday, 22 September 2014 02:06 PM
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