Your credit score is now being watched even more closely. And that’s probably a good thing.
The Consumer Financial Protection Bureau, which was created in 2010 to serve as a watchdog over credit cards, mortgages, payday loans, and other consumer financial products, announced Monday that it will start supervising the consumer reporting agencies. Those agencies collect information on consumers’ credit worthiness and are best-known for calculating credit scores, which often determine the availability and affordability of consumer loans.
Those scores and their related credit reports have long created headaches and confusion for consumers, who often find that their reports contain errors that can be hard to correct. Surveys suggest that many consumers falsely believe maintaining a credit card balance can help their credit score, when in reality it can hurt it. Many consumers also falsely believe that they have just one credit score or that they share a score with their spouse; each credit reporting agency generates its own scores, which are given to individuals, not couples.
In a speech in Detroit Monday, Consumer Financial Protection Bureau director Richard Cordray pointed out the importance of access to credit: The ability to take out loans makes it possible to get a college degree, buy a home, use a credit card, or buy a car, he said, adding that employers also increasing use scores to determine whether an applicant is eligible for a job.
“Whether you realize it or not, [credit agencies’] scorekeeping exerts a tremendous and growing influence over the ways and means of your financial life,” he said. That’s why the bureau chose to focus on the industry: The new supervision means that the bureau will have the authority to conduct on-site examinations of agencies to check whether they are complying with the law, to better understand the companies’ business models and practices, and to address practices that might be hurting consumers, Cordray said.
“These companies have never before been subject to any federal supervision program,” said Cordray. Now, they will be monitored just as big banks are monitored, he added.
It’s not yet clear exactly what this change will mean for consumers, but the change could have a similar effect to the one felt by the credit card industry after the 2009 Card Act. That law required credit card companies to use clearer language in credit card statements and to give consumers more warning before raising interest rates on cards. A survey by research and advocacy organization Demos found that the vast majority of cardholders said they noticed a difference and one-third said they’re paying their balances off faster as a result of the new information included on their statements.
In the near-term, the Consumer Financial Protection Bureau will begin reviewing the largest credit bureaus’ operations and compliance systems and also require them to provide information and reports about their practices. The first examinations of bureaus are set to begin this fall. The three biggest bureaus, Experian, Equifax, and TransUnion, did not immediately respond to requests for their response to these new procedures.
In Detroit Monday, Cordray also reminded consumers to take advantage of their ability to check their credit reports for free once a year. Doing so can reveal “odd entries,” he said, which could be a sign of identity theft, as well as give consumers a chance to fix any errors on their report. To get your free annual credit report, visit AnnualCreditReport.com. While consumers generally have to pay to see their scores, obtaining a report is free once a year.
No one, said Cordray, cares as much about protecting your financial life as you do—so be sure to do what you can to monitor it.