Credit Scoring Reform Wholesale Proposals

Do you think that Credit Scoring is unfair from soup to nuts?  Would you like to see credit scoring reforms mandated that achieve sweeping changes?  After all Sweden’s credit reporting system only keeps negative credit information for 3 years; Germany keeps it for 4 years.  Isn’t 7 years for most negative entries just too long?

The new FICO 9 will eliminate paid medical bills and downgrade the importance of medical debt in general.  But is this just a band aid when a tourniquet is needed?  Maxine Waters (D-CA) has introduced a bill that would change the entire credit scoring landscape.  Credit scoring reform according to her proposed bill would provide for sweeping changes.  Fannie Mae and Freddie Mac would be required to study regularly the benefits of additional or alternative methods for accurate credit scoring in furtherance of credit scoring reform.

Congresswoman Waters’ Credit Scoring Reform Proposal

The Fair Credit Reporting Improvement Act  would mandate radical changes in Credit Reporting policies.  It would reduce the time derogatory information could remain on your credit report and make some other sweeping changes in credit scoring reform:

• Bankruptcies would remain for 7 years instead of the 10 years under the current system.
• All other negative entries could remain for a maximum of 4 years instead of 7 years.
• Any adverse item would be removed 45 days after payment or settlement.
• Credit bureaus would be required to perform independent investigations of negative reports.
• Inquiries for auto, mortgage and student loans in a 120 day period would be treated as one inquiry.
• Private student loan defaults would be erased after 9 consecutive on time payments just as federal student loan defaults are.
• Companies could not use credit checks to weed out job applicants.  (This is already the law in 11 States including California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon,Vermont and Washington).  Check carefully because each state has different details.
• Furnishing of negative information would require retention of all relevant records for as long as the adverse information remains.
• Adverse information regarding residential loans would be removed if unfair, deceptive, abusive or fraudulent activity was alleged by the CFPB or FTC.
• Disputed information could not be considered. (Supposedly credit bureau‘s disputed information is not considered now by FICO or Vantage but in practice don’t count on this.)
• No derogatory credit report entry subject to a “Federal credit restoration program” could be considered. ( There is no such thing as a Federal credit restoration program.)

Credit Scoring Reform as Outlined in The Fair Credit Reporting Improvement Act is Unlikely

In all there are 20 provisions for credit scoring reform proposed.  In Congress would be lawmakers have to start out with a wish list in their original proposal and expect a great deal of compromise to get anything enacted.  Critics argue that wholesale adoption of this credit scoring reform would invite people to game the system.  Is it realistic to expect credit bureaus to conduct credible investigations of all the facts and circumstances regarding each negative entry?  This imaginary Federal restoration program is indicative of the wishful thinking that runs through these proposals..You will wait a long time before the Federal government gets involved in the credit repair business.  After all the huge banks make obscene contributions to the campaigns of the politicians who are then supposed to set up strict rules for their behavior.  That is not going to happen.