Building a strong credit score is no simple feat, but it may be getting a little easier thanks to a new bill recently proposed in Congress. Dubbed the Fair Credit Reporting Improvement Act of 2014, it would make broad changes in how credit scores are calculated. It follows the Fair Isaac Corporation’s announcement last month that it would be tweaking its scoring model to reduce the amount of weight given to collection accounts and medical debts.
Changes to Time Reporting
One of the biggest changes of the bill, introduced by Representative Maxine Waters (D-CA), would reduce how long derogatory information can remain on your credit report. Currently, negative marks like charge-offs, collection accounts and late payments can linger on your credit report for seven years, and bankruptcies can stick around for up to 10. Rep. Waters seeks to limit the reporting time frame to seven years for bankruptcy cases and four years for all other types of negative remarks, including judgments and liens.
The bill would also require credit reporting agencies to remove any adverse information within 45 days after an account is paid or settled, including amounts forgiven through a short sale. Foreclosures would also be automatically removed if they were the result of deceptive lending practices. For struggling homeowners who’ve seen their credit scores take a dive, this provision would be a major boon.
Broader Window for Inquiries
Part of how your FICO score is calculated is based on many inquiries for new credit you have. When you’re shopping around for a home or car loan, it’s easy to accumulate multiple inquiries within a relatively short period of time. Currently, inquiries that occur within two weeks of one another only count as one for credit reporting and scoring purposes. The bill would expand this window to 120 days, giving potential home and car buyers more time to secure a loan without worrying about damaging their credit.
Enhanced Dispute Procedures
If you find an inaccuracy or error on your credit report, you have the right to initiate a dispute with the agency reporting the information. The credit bureau is responsible for contacting the original creditor to verify the information you’re disputing and make any necessary changes to your report in a timely manner. The bill would require credit bureaus to investigate disputes independently, without going directly through the creditor.
Credit bureaus would have to notify creditors that a dispute has been filed within five days of receiving it. Entities that provide information to the reporting bureaus would be required to keep all their records on file for as long as the account remains on the consumer’s credit file. Consumers would also have the right to file a lawsuit in order to have negative information removed or corrected.
Relief for Some Student Debtors
Student loan default rates are creeping upward and borrowers are seeing the effect on their credit scores. If you’ve fallen behind on your student loan payments, the bill would give you a chance to undo the damage. As long as you make nine consecutive on-time payments, any previous late or missed payments would have to be removed from your credit report. Unfortunately, the bill makes no provision for federal student loans.
Credit Screening and Employment
Completing credit checks for new employees has become commonplace for many employers, but Rep. Waters aims to change the practice. While employers can’t see your actual credit score, they can still see any negative information in your report, which could sway their decision to hire you. If the bill becomes law, employers would only be able to access your credit reports if the information contained in them is considered to be a valid indicator of how it would impact your ability to do your job.
How the Bill Affects Consumers
If you’ve already got a good credit score, the passage of the bill probably wouldn’t have much of a personal impact. On the other hand, if you’ve got a sketchy history because you’ve missed payments in the past or you got caught up in the fallout from the housing market collapse, the bill could raise your score significantly.
The problem, critics are arguing, is that it has the potential to artificially inflate scores without gauging consumers’ true creditworthiness. They also claim it would make it easier for people to walk away from substantial credit card debt without fear of hurting their credit score, since they could settle them down the line with essentially no penalty. Those are likely to be two of the biggest concerns lawmakers focus on once the bill hits the Senate.
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