Rep. Maxine Waters (D., Calif.) has proposed a new bill titled “Fair Credit Reporting Improvement Act of 2014” which would make a number of changes to the data that credit bureaus are able to keep on consumers. Below are a list of the proposed changes:
- Collections, judgments and paid tax liens would only be able to be kept on a consumers credit report for a period of four years (currently at seven years)
- Bankruptcies would be kept on a consumers credit report for a period of seven years (currently at ten years)
- Foreclosures & short sales would also be removed from a consumers credit report if the CFPB deemed them to be the result of deceptive lending practices
- Adverse debt information would be removed 45 days after those debts are fully paid or settled
- Those with private student loans that make nine or more on time payments in a row would have previous mentions of late payments for that loan removed (this provision already applies for those with public loans)
- Restricted usage of credit reports for employment purposes
If this sort of thing interests you, I’d recommend reading the official summary here or the full draft proposal here.
Our Verdict
Overall I think the proposed changes are a win for consumers. It’s great to see more and more politicians becoming aware of how broken our credit reporting and credit scoring system currently is and how inefficient it is. There are a few changes that I am somewhat skeptical about (e.g reducing the length of time that severe adverse items have, such as bankruptcies). I’d need to see some statistics that show reducing these limits wouldn’t result in higher delinquency rates due those with sub prime credit having access to more credit than they should.
We’ll keep you updated on how this bill progresses. If you’re new to credit scoring models and credit reports, I’d recommend the following reads:
Think most of the “improvements” would only help those who are irresponsible with credit. I sure wouldn’t want to be someone extending credit to people who chronically fail to repay on time – removing that data 45 days after they pay it off is insane public policy.
As I said, it’s difficult to tell without actually seeing the data behind it. For example with medical debt lowered weighting actually reduces delinquency rates and increases the number of borrowers creditors can lend to. I wouldn’t have thought that the data would support that, but it does.
I agree though, some of the proposed changes are madness.