Analysis

Stay Ahead of the Game

Your credit score is more than just a number. It’s a tool companies use to make decisions about you. From credit card issuers to other lenders, a higher score can unlock better terms or credit cards with more perks. A lower score might make it hard to access credit at all.

There’s a whole industry devoted to your credit score and credit history. The three main players, Equifax, Experian, and TransUnion, are always trying to improve their ability to predict how you might handle credit. Which is why you’ll have several credit scores, depending on which bureau calculates it and which model it uses.

Here are four of the upcoming trends in credit reporting to watch.

1. Further changes to medical debt reporting

Groups such as the Consumer Financial Protection Bureau (CFPB) argue that medical debt is not a good indicator of how people handle credit. As a result, there have already been significant upheavals in the way credit agencies treat medical debt. But the CFPB wants more. It is pushing for agencies to completely remove medical debt from our credit reports.

In recent years, the main credit agencies have:

  • Removed all paid medical debts from people’s credit reports
  • Increased the grace period on unpaid medical collections from six months to a year
  • Removed medical collections for debts of less than $500

Urban Institute research shows the moves have had a dramatic effect. The number of Americans with medical debt in collections on their credit report has fallen from 16% in August 2018 to just 5% in August 2023.

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How you can act on this trend:

If you find yourself facing a medical issue, hopefully the new rules will make it easier to focus on your recovery and not your finances. Medical bills could still be a concern, but if the proposed changes go through, medical debt won’t drag your credit down. Let’s say you’re applying for a mortgage. The lender would not be able to factor any money you owe for medical bills into your application.

Even if the new rules don’t come into play, if you have medical debt in collections, you may be able to get it removed from your credit report. Check your credit report. If the debt is under $500 or less than a year old, you may be able to improve your credit score by disputing it. You can also get any paid medical debts removed.

2. Weekly credit reports will continue to be free

It used to be that people could request a free credit report from each reporting agency once a year. That changed during the pandemic when the credit bureaus introduced free weekly credit reports. And now that change is permanent.

This reflects a trend toward making it easier for consumers to access and check the information credit bureaus hold on them, which is a good thing given that reports are not always accurate. Indeed, a Consumer Reports study showed over a third of people found mistakes on their credit reports.

How you can act on this trend:

Checking your credit report regularly is a great way to catch any mistakes that could be dragging down your score. It can also mean you spot fraud or identity theft early, so you can act quickly to reduce any damage.

Go to www.annualcreditreport.com to request your free credit reports from each agency. Check for any incorrect information such as accounts you didn’t open or a bill you paid that’s listed as overdue. Also, check your personal information such as your name, address, and phone number.

3. Increased adoption of AI

One of the many strengths of artificial intelligence and machine learning is the ability to process large quantities of data to find patterns and make predictions. It’s not surprising, then, that the tentacles of AI have reached well into the world of credit reporting. For example, FICO has been using AI for several years. It champions explainable, ethical AI and says its Responsible AI model combines machine learning with traditional methods.

How you can act on this trend:

Personally, I find the idea of a robot making decisions about my credit score a little unnerving. It is also unavoidable, so it’s good to know you have rights. According to CFPB Director Rohit Chopra. “Creditors must be able to specifically explain their reasons for denial. There is no special exemption for artificial intelligence.”

If you get denied credit, the lender needs to tell you why. In detail. It isn’t allowed to give you a broad reason such as your “purchasing history.” Don’t be afraid to push back, especially if you feel the reasoning isn’t clear.

4. Increased use of alternative data sources

The catch-22 of credit is that you often need to have some form of credit to be able to access credit. A 2015 CFPB report categorized 26 million Americans as “credit invisible.” This means they don’t have a credit history with one of the three credit bureaus.

The various credit-building products on the market, such as credit builder loans or secured credit cards, can help. But incorporating other data could be a game changer as it gives consumers other ways to show they can handle credit responsibly. Alternative data might include things like rent payments or your bank account balance.

How you can act on this trend:

If you have trouble accessing credit, see whether services like Experian Boost, which factor in things like utility bills and rent payments, could help. Check out UltraFICO® which factors your banking activity into your score. These services could show lenders you can be trusted to repay credit.

Staying ahead of the game

There are some big changes afoot in the credit reporting industry, many of which will be good for consumers. One thing that’s unlikely to change is that paying bills on time and keeping on top of your debt are smart ways to maintain good credit. Hopefully the technological and regulatory changes will give consumers more ways to show lenders they can handle any debt they take on.

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