It just doesn鈥檛 seem fair.
Your credit score was dinged by recent, unpaid medical expenses or an error on your credit report, and now you鈥檙e having a hard time getting a loan for a car you need to get to work.
It鈥檚 a scenario that is not difficult to imagine when millions of car buyers are considered nonprime (601-660 on FICO鈥檚 850-point scale) or subprime (600 or lower), based on data from Experian Automotive. And when more than half of debt listed on credit reports is unpaid medical expenses, according to a Consumer Financial Protection Bureau report cited by LATimes.com.
That鈥檚 why the agreement by the big three credit reporting agencies 鈥� Experian, Equifax and TransUnion 鈥� to change the way they report medical expenses and correct errors is such a big deal.
Indeed, various sources called it 鈥渕onumental鈥� and 鈥渃olossal鈥� for consumers.
鈥淐redit reports touch every part of our lives,鈥� said N.Y. Attorney General Eric T. Schneiderman in announcing the agreement. 鈥淭hey affect whether we can obtain a credit card, take out a college loan, rent an apartment, or buy a car 鈥� and sometimes even whether we can get jobs.鈥�
RELATED: Here are some auto loan shopping tips for subprime borrowers and Consumer credit scores, borrowing opportunities expected to rise with FICO changes
The attorney general said the agreement, which will begin going into effect within the next six months, will 鈥渋ncrease the fairness鈥� of credit reports and 鈥減rovide vital protections for millions of consumers.鈥�
Two key elements of the agreement require the credit-reporting agencies to:
- Institute a 180-day waiting period before reporting medical debt, providing extra time 鈥渢o permit resolution of delinquencies that result from insurance delays or disputes.鈥�
- Strengthen efforts to investigate error claims when a consumer initiates a dispute, rather than regularly accepting a lender鈥檚 report and supporting documentation at face value.
A 2012 study by the Federal Trade Commission found that 26 percent of participants identified at least one potentially material error in their credit reports, and that 13 percent of participants experienced a change for the better in their credit score as a result of modification to their credit report.
鈥淭hese findings suggest that millions of consumers have material errors on their credit reports,鈥� said the attorney general鈥檚 office, thereby affecting their ability to borrow for a car or anything else.
Experian, Equifax, and TransUnion maintain consumer credit information on approximately 200 million consumers based on voluntary submissions from 鈥渄ata furnishers鈥� such as banks and collection agencies. The agencies provide credit reports to companies who then use the reports to decide whether to grant credit to a prospective borrower and in determining the cost of credit.
Websites, such as Credit Sesame, may provide tools to help you figure out your credit situation, such as a credit score, credit report card and a credit score chart.
For more details of the credit-reporting agreement and what it means to you as a borrower, see the press release from the N.Y. attorney general鈥檚 office.
