If you’ve been following the news lately, you likely know that the Biden administration is planning some big financial and tax changes. Here’s an overview of Biden’s proposed alterations to credit reporting and scoring and how these Biden credit scores could potentially affect people.
Why Do Credit Scores Matter?
Your credit score, whether it’s calculated by Experian or TransUnion, is a picture of your overall financial health. It includes information in the following categories:
· Your number of open accounts
· Whether you make your monthly payments on time
· How much credit card debt you have
· How much of your overall credit you are utilizing (under 30% is usually best)
How do your scores look? If you’re taking a major financial step including trying to secure a loan, apply for a mortgage, or even get your rental application approved by a landlord, it’s important for this number to be consistently high.
Why Does Biden Want to Change the Way Credit Scores are Reported?
Having good credit is one of the most important steps you can take to securing a mortgage, and if you have bad credit, you may not be able to secure the mortgage you want at the interest rate you desire. Many people think that at best, these scores do not give the lender a full picture of someone’s financial history, and at worst, they lead to misinformation and even lean toward racial biases.
It’s no secret that the United States has a long history of racial inequality. This financial unevenness often leaves minority populations disenfranchised, unempowered, and unable to build or maintain their credit. It often leaves many people “credit invisible” because of their own or their family’s history when it comes to building credit.
How Does President Biden Want To Fix These Issues?
President Biden wants to create a new division of the Consumer Financial Protection Bureau that functions as a public credit reporting and scoring entity. Unlike traditional credit reporting agencies like TransUnion, Experian, or Equifax, the goal of this division is to level the playing field by including more sources in the calculating and reporting of credit. For those who have never owned a home, rental history may be considered. For people who have a strong history of paying utility bills, this factor could be included in their overall credit score to strengthen it.
When “nontraditional” sources of great financial history are considered, this helps people from poorer communities and gives a leg up to those whose families have never owned property. Because so many racial and ethnic groups in our country do not have a long history of property ownership and traditional good credit, this will help create a fair and equitable experience for everybody. Biden’s goal is for everybody to have the ability to maintain good credit and secure good housing and lending options if that is what they choose.
Are There Downsides to Biden’s Plan?
Unfortunately, many people think that there are gaping holes in Biden’s plan and that changing the way credit is reported — from private bureaus to a governmental agency — is the wrong move for our country. Examples of the issues that could still exist under this plan are:
1. Credit Reporting Issues
Many of the issues caused by credit reporting are not errors of the big bureaus: They are the result of being given faulty information by banks, debt collectors, and other agencies that are not part of the bureaus. Under Biden’s plan, this issue will unfortunately still happen and will not be eliminated by the change in reporting (at least by the credit bureaus).
2. Credit Bureaus and Disputes
People often dispute charges to their credit score, and the governmental agency may not be big enough to handle it. If the Consumer Financial Protection Bureau, instead of bureaus like Experian and TransUnion, is given the responsibility of handling credit scores, this will likely lead to a gigantic backlog of issues that have yet to be addressed. In waiting, many people may lose their chance at raising their scores due to the lack of funds and employees at this governmental agency.
3. Borrowing Money Could Cost a Lot More
Credit scores may not be completely accurate representations — especially when racial equity is concerned. However, if everyone suddenly has a good credit score, this score will mean less. As a result, good credit will cost Americans more money in terms of higher interest rates and longer terms for their loans.
Is There a Better Solution to This Problem?
Many people think that politicians should take up the cause: If they could overcome partisan issues when speaking about credit and dealing with issues of racial equity and the obvious inequality our nation is facing, the outcome would be one that could work for more people — and for a longer time. For now, we’ll simply have to wait and see.
Get In Touch With Further Questions
If you have questions or comments about credit reporting, or if you would like to discuss Biden’s plan and better understand how it could affect your credit, let us know. Get in touch with Coast Tradelines today.