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Know Your Number: New Consumer Credit Protections

Until recently, you typically had to pay to see your credit score. That’s changed as a result of an initiative by the Consumer Financial Protection Bureau (CFPB). In February, the CFPB announced that more than 50 million Americans now have free access to their credit scores through their credit-card companies, and tens of millions more should have access soon.1

In more good news for consumers, the three major credit-reporting agencies agreed to changes that should make it easier to correct errors and reduce the negative credit impact for late payment of medical bills.

Your credit profile can make a big difference in your financial life, not only for major purchases such as a home or car but also for college loans, credit-card terms, and insurance premiums. Your credit profile might even come into play when you apply for a job or rent an apartment. Considering the recent changes, this may be a good time to take a closer look at your credit score and your credit report.

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Three Key Digits
The next time you receive your monthly credit-card statement, look for your score or check your online account. If you don’t see your score, ask when it will be provided. Free access to credit scores is an important benefit that could be the foundation for managing your credit. However, be sure you understand which score you are receiving and how to interpret it.

The most common credit score, and the one typically shared by credit-card companies, is your FICO®score — a three-digit number ranging from 300 to 850; this scoring model from Fair Isaac Corporation comes in several editions and variations. The VantageScore, developed by VantageScore Solutions, used a 501 to 990 scale in the past, but the newest VantageScore 3.0 uses a 300 to 850 scale. Multiple versions of these scores may be available to lenders, and scores might differ among reporting agencies. Even so, knowing at least one version of your score should provide a good clue regarding how a lender might perceive your credit risk.

What’s a good score? It can vary by situation. However, the CFPB published a report in 2013 that classified FICO scores in four categories: superprime (720 or higher), prime (660 to 719), core subprime (620 to 659), and deep subprime (under 620). At that time, it was estimated that 65% of Americans had superprime or prime scores.2

New Consumer Protections
In a March 2015 settlement with the state of New York, the three major credit-reporting agencies — Experian, Equifax, and TransUnion — agreed to changes that provide more leverage and flexibility for consumers. Although the settlement is with a single state, these changes should be implemented nationally over the next 6 to 39 months.3

Reports and disputes. Since 2005, the Fair Credit Reporting Act ensured consumers the right to receive one free copy of their credit reports annually from each of the three major agencies. Under the new agreement, consumers who are disputing their reports will be able to receive a second free copy from each agency within a one-year period.

Even more important, agencies must have trained personnel examine documentation from both the consumer and the lender and make a decision based on the evidence. In the past, the agencies examined documents from the consumer but generally accepted a lender’s assertion regarding a disputed issue. A CFPB report found that, on average, only 15% of disputes were resolved by the agencies and the other 85% were referred back to the lenders.4

Medical debt. About 43 million Americans have past-due medical debt on their reports, often due to difficulties with insurance companies or the strain of paying a large lump sum.5 Credit-reporting firms now have to wait 180 days before adding medical debt to a credit report. In addition, they must remove medical debt from reports when the debt has been paid by an insurance company. Other delinquencies may remain on a report for up to seven years, even after the debt has been paid.

Improving Your Score
If your score is lower than you expect or think you deserve, your first step should be to obtain your credit report from each agency and make sure that all versions are correct. Even if you have a high score, you should check your report on a regular basis.

You can order a free credit report annually from each of the three major credit-reporting agencies atannualcreditreport.com or by calling (877) 322-8228. If you find inaccurate information on your report, contact the agency in writing, provide copies of any corroborating documents, and ask for an investigation.

Whether your goal is to improve your score or maintain your current score, the following tips may help.

  • Use at least one major credit card regularly and pay accounts on time. Setting up automatic payments could help you avoid missed payments.
  • If you do miss a payment, contact the lender and bring the account up-to-date as soon as possible.
  • Keep balances low on credit cards and other revolving debt. Don’t “max out” your available credit.
  • Don’t open or close multiple accounts within a short period of time. Use older credit cards occasionally to keep them active.

For more information on obtaining and disputing your credit report, visit consumer.ftc.gov/topics/credit-and-loans.

1–2) Consumer Financial Protection Bureau, February 19, 2015, and October 1, 2013
3–5) The Wall Street Journal, March 9, 2015

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2015 Emerald Connect, LLC


Lamont Financial Services
250 Bel Marin Keys Blvd, Suite F3 Novato, CA 94949
Phone: (415)883-5200
www.lamontfinancial.com jlamont@lamontfinancialservices.com

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