Borrowers may soon have more weapons to fight back against erroneous credit reports and credit scores. This includes uncovering discrepancies when a report or score obtained by a consumer differs from the data that land on a lender's desk, simply because the numbers were derived from another service.
In this new era of controversial, tighter banking and mortgage rules, one sliver of the loan market hasn't changed: the credit bureaus. The Consumer Financial Protection Bureau (CFPB)—a layer of regulation created under the Dodd-Frank Wall Street Reform and Consumer Protection Act—issued a new report and took public comment late this summer on whether it should oversee credit bureaus with the same scrutiny it is leveling at big banks.
Up for debate is whether the CFPB should fully supervise the three primary credit bureaus—Experian, Equifax and Transunion—as well as other specialty credit bureaus and credit scoring companies.
Credit scores are numerical summaries of the comparative credit risks of default. These scores are important because they are used to make credit-granting decisions, to identify prospects for credit solicitations, to make decisions about raising or lowering credit limits on credit cards, and to set terms for mortgages or other loans.
"Even if you've never missed a payment, an error on your credit report can mean you're denied for a loan or pay higher interest rates. You could even be turned down for a job. And in fact, nearly one-quarter of credit reports were found to have serious errors, including false delinquencies," says Brian Imus, Illinois director for the citizen lobby group Public Interest Research Group. "Despite the fact that errors can harm your credit and lower your credit score, the bureaus have never once been held accountable for their mistakes."
The Big 3 bureaus, known to regulators as Consumer Reporting Agencies (CRAs), have been fined only a handful of times, according to PIRG data. Once, in 2000, all three were fined for not having enough people to answer the phones to handle consumer complaints. And, one firm did pay fines for making people pay for what should have been free reports.
The CFPB wants to make sure consumers have access to the complete picture of their credit history. The method by which scores are calculated, how borrowing history is tracked, and how to correct wrong information remain a mystery to many consumers navigating loan markets. Credit firms do offer educational materials that cover the basics. Regulators aren't sure that's enough.
"One way consumers have tried to empower themselves is by knowing their credit scores," said Elizabeth Warren, special advisor to the Secretary of the Treasury on the CFPB, in a statement. "We are assessing whether purchasing a credit score provides a consumer with the information he or she needs."
Her report covers the process of developing credit scoring models, why different scoring models may produce different scores for the same consumer, how different scoring models are used by creditors in the marketplace, and what credit scores are available to consumers for purchase. It also covers the ways that differences between the scores provided to creditors and those provided to consumers may disadvantage consumers.
Consumer experts recommend anyone with outstanding credit access their free-of-charge credit report at least once annually. AnnualCreditReport.com is a centralized site that allows consumers to see their credit file disclosure, a regulatory term for a credit report, once every 12 months from each of the three nationwide consumer credit reporting companies.
But accessing information gets a little trickier when it comes to the actual credit scores that factor heavily in new loan or refinancing approvals. Consumers typically pay for these. Expenses may go up if the consumer has to buy more than one score from different bureaus, or is launched into a lengthy investigative period to uncover errors. TransUnion, for example, provides a way to submit a dispute by phone or online, but stresses that the data provider or source can take up to 45 days to verify the information. That's a lengthy waiting period for consumers trying to secure a mortgage and a house closing.