One of the main reasons you’re likely to be declined for a mortgage is your credit report. More specifically, derogatory information contained therein. Unfortunately, many of us are still not proactive when it comes to our credit report. And for many, erroneous information that is foisted upon them without their knowledge affect their daily lives.
Flawed data has been a long standing issue in the credit industry. A 2012 study conducted by the Federal Trade Commission (ftc.gov) found that “one in five consumers” disputed and corrected an error that was reported to a credit reporting agency (CRA). A follow-up study conducted in 2015 found that “Most consumers [almost 70 percent] who previously reported an unresolved error on one of their three major credit reports believe that at least one piece of disputed information on their report is still inaccurate.” The follow-up study recommended that CRA’s “review and improve” the dispute process, as well as increase consumer education efforts. From the FTC report:
The follow-up study announced today focuses on 121 consumers who had at least one unresolved dispute from the 2012 study and participated in a follow-up survey. It finds that 37 of the consumers (31 percent) stated that they now accepted the original disputed information on their reports as correct. However, 84 of these consumers (nearly 70 percent) continue to believe that at least some of the disputed information is inaccurate. Of those 84 consumers, 38 of them (45 percent) said they plan to continue their dispute, and 42 (50 percent) plan to abandon their dispute, while four consumers are undecided.
The final study also examined whether consumers from the 2012 study who had their credit reports modified after disputing information on their credit reports had any of the negative information that had been removed subsequently reappear on their reports. The study found two instances of this, representing about 1 percent of these consumers.
On March 9, 2015, New York Attorney General Eric T. Schneiderman announced an agreement that was worked out with the three credit repositories (Experian, Equifax, And Transunion). The agencies agreed to seek improvements to the credit report dispute resolution process, as well as increasing protections for consumers from false claims and reporting paid debt (such as medical bills).
As A.G. Scheiderman’s statement was released, the Consumer Data Industry Association (the trade association for the consumer data industry) announced the creation of the National Consumer Assistance Plan. The roll-out of The Plan is to be over three years, and includes a website (nationalconsumerassistanceplan.com) where consumers and the CRAs are to interface about credit reporting news and information. Stuart Pratt, President and CEO of the Consumer Data Industry Association, stated in a press release:
“…The nationwide consumer credit reporting companies are making important changes to their procedures that will improve their ability to collect accurate information, and we want to make sure consumers know about the new options available to them…”
Additionally, the press release included highlights of the National Consumer Assistance Plan:
Consumers visiting www.annualcreditreport.com, the website that allows consumers to obtain a free credit report once a year will see expanded educational material.
Consumers who obtain their free annual credit report and dispute information resulting in modification of the disputed item will be able to obtain another free annual report without waiting a year.
Consumers who dispute items on their credit reports will receive additional information from the credit reporting agencies along with the results of their dispute, including a description of what they can do if they are not satisfied with the outcome of their dispute.
The credit reporting agencies (CRAs) are focusing on an enhanced dispute resolution process for victims of identity theft and fraud, as well as those who may have credit information belonging to another consumer on their file, commonly called a “mixed file.”
Medical debts won’t be reported until after a 180-day “waiting period” to allow insurance payments to be applied. The CRAs will also remove from credit reports previously reported medical collections that have been or are being paid by insurance.
Consistent standards will be reinforced by the credit bureaus to lenders and others that submit data for inclusion in a credit report (data furnishers).
Data furnishers will be prohibited from reporting authorized users without a date of birth and the CRAs will reject data that does not comply with this requirement.
The CRAs will eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as traffic tickets or fines.
A multi-company working group of the nationwide consumer credit reporting companies has been formed to regularly review and help ensure consistency and uniformity in the data submitted by data furnishers for inclusion in a consumer’s credit report.
An improved credit reporting industry was to take another leap forward with the introduction of H.R. 5282 – Comprehensive Consumer Credit Reporting Reform Act of 2016 (congress.gov). Introduced in Congress May 19, 2016, the bill is a comprehensive restructuring of the credit reporting process. Among the many details, the bill also: calls for a new dispute process; “meaningful” disclosures about resulting investigations; limits credit reports for employment purposes; requires removal of items that were a result of identity theft, fraud and other crimes; and transfers authority from the FTC to the CFPB on “procedures for reporting identity theft, fraud, and other related crime.” The bill was referred to committee, where it appears to have stalled.
Your credit report has become akin to your “financial soul.” Some of its uses include assisting entities in deciding whether to employ you, lend to you, or extend you credit. It has even become vogue for individuals to check someone’s credit report before going out on a date!
Financial experts and government agencies recommend you become proactive and check your credit report annually, and dispute inaccurate information. Annualcreditreport.com is the only “authorized” website where you can receive a free credit report annually from the three repositories. The site also contains information on protecting your identity, and links to the FTC and CFPB for topics such as how to maintain good credit, and credit repair.
Copyright © Dan Krell
Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.