The announcement last week that the nation’s three largest credit-score companies will overhaul their data-gathering practices is a breath of fresh air.
In an agreement with New York Attorney General Eric Schneiderman that is expected to go national, Equifax Information Services LLC, Experian Information Solutions Inc. and TransUnion LLC committed to becoming more proactive in resolving disputes over information in credit reports. The changes will be phased in over the next three years.
One of the most critical changes will be the listing of unpaid medical bills in credit reports. Fairness would appear to dictate that most medical bills should be evaluated differently from, say, credit card purchases at retailers or car dealers. Consumers don’t daydream of running up six figures in medical bills. That’s their nightmare.
First: The putative side discussion of whether affected consumers should have bought the proper health insurance should stay benched. It’s the mirror image of the quote widely attributed to French poet, journalist and novelist Anatole France about the contemporaneous law forbidding “rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread.” Second: a more present-day concern regarding the many economic costs associated with a catastrophic illness that are not covered by health insurance – such as caregiver job loss – should factor into the mix.
There’s another thing. Even those with good health insurance may have to wait months for their insurers to pay. In the meantime, they’re the ones who are technically delinquent. The new rules would require credit scorers to wait 180 days to put delinquent medical bill information into a credit report.
Getting back to the wider credit reporting picture, the gist of most of the reforms emphasizes the need for better-informed credit-scorer staff to work out disputes over verification of credit report information. Previously, consumers couldn’t successfully correct erroneous information in their credit reports without significant hardship. Credit scorers will now be required to use trained employees to review consumers’ documentation of disputes, as opposed to relying on the creditors’ versions. Additionally, the New York ruling prohibits the listing of debt liability incurred from payday lenders that have been found to operate outside the rules of New York State.
It’s not on the same scale as voting rights issues, but it will have significant long-term effects, for both borrowers and lenders. A better-informed credit scoring methodology will bring more genuinely viable credit candidates into the lending forum. As most of the readers of this space know, credit scores are critical to consumers’ access to not only the charge card at their favored department store, but also, access to jobs and housing. Imagine the benefits of having a wider cadre of more properly vetted borrowers.
It will also have an indirect effect on lenders, who, newly responsible for their lending decisions, have heightened concern about genuine criteria on borrower quality. To reprise the theme of Martin Scorsese’s classic “New York, New York” – “If it can make it here, it can make it anywhere.” And it should.