With a new administration at the helm, there has been talk of revamping the current three-company approach for credit reporting agencies in order to bridge potential disparate treatment and help eliminate racial bias. There have also been rumblings within the Biden Administration of doing away with the three-bureau approach altogether.

Many consumers know that managing their credit and obtaining the highest scores possible can help achieve favorable terms in lending which can ultimately lead to their own personal financial freedom. On the flip side of that, miss a payment either intentionally or by incorrect reporting by a creditor and consumers can be impacted with score drops that affect lending terms or preclude them from obtaining credit at a time when it may be needed most. For some consumers, the lack of education surrounding these scoring metrics can produce a snowball effect both for them and on what they pass down to their children.

Credit reporting has been used by the financial industry for years as a means of protection more than it has been used as a tool to build generational wealth and financial empowerment. While lending guidelines have had more consumer-friendly regulations put into place, the industry as a whole still relies on a monopolized reporting system from the three bureaus that may deem one borrower more credit worthy than another without a lot of information on how that gets determined.

There are other scoring models available that are overlooked. Most are lost in translation, are not clear on how scores are arrived at or how activity can affect those scores. A reset of sorts to the current credit scoring models the financial industry uses will likely be met with some resistance, but the end goal here is to have a scoring system that works for consumers as well as financial companies. There are certainly arguments on all sides around potential changes, but one thing that seems to be consistently at the forefront is implementing a system that is fair, accurate and serves the needs of all consumers from all demographic and socioeconomic backgrounds.   

Let me know if you have any questions or would like any estimates! Stay healthy!

Source : https://www.housingwire.com/articles/hello-2021-goodbye-credit-reporting-agencies/

by Andrew Augustyniak, Peoples Mortgage