The three major U.S. credit bureaus—Experian, TransUnion, and Equifax— are soon going to change the way they handle credit report errors and unpaid medical bills.
The credit bureaus maintain data on millions of U.S. borrowers—data that is used to generate your FICO® Scores—so overhauling the way disputes are handled to make fixing credit report errors easier could be good news for your scores.
The new guidelines for how the bureaus will list medical debts might also have a positive impact for consumers’ FICO Scores. The announced changes have been variously described as “huge,” “colossal,” and any other synonyms you can think of for “really, really big.” So what exactly is changing, and how will the changes affect you? Read on to find out.
A number of significant changes were announced as part of the agreement (like access to a second free credit report on annualcreditreport.com for any consumer whose credit report changes because of a dispute) but a couple of them stand out above the rest for the potential ramifications they might have for consumers’ FICO® Scores:
- Actual humans will review errors. The way the dispute process works right now, if you spot an error on your credit report—for instance, your credit report lists an unpaid debt even though you know for sure you’ve paid it—you can file a dispute online. According to a 2012 Consumer Financial Protection Bureau report, only 15% of these disputes were resolved by the credit bureaus themselves. The other 85% were passed on to the banks, lenders, credit card issuers, etc., that reported the erroneous information in the first place. The process is heavily automated, which means errors that might be easily spotted and fixed by a human are being overlooked and left unresolved.
Under the new agreement, a trained agent will review disputes about credit report errors, an improvement over the current, largely automated process that leaves plenty of credit report mistakes unfixed. This should make fixing credit report errors—which affect consumers’ FICO® Scores — much easier.
- Medical debt will only be reported after a 180-day waiting period. About 43 million Americans have unpaid medical debts on their credit reports, according to a recent CFPB report, many of which are due to coverage disputes and delayed payments made by insurance companies.
As a part of the new changes, consumers will now have some much-needed extra time to resolve payment and coverage disputes with their insurance companies without having to suffer a blow to their credit reports and FICO® Scores.
What it means for you
According to a 2013 Federal Trade Commission study, one in four consumers had an error on their credit report that could affect their FICO® Scores. Making it easier to fix credit report errors should go a long way in relieving the frustrations of the 25% of consumers whose credit is being impacted by incorrect information. Negative items stay on your credit report for as long as seven years. Being able to remove negative information that doesn’t belong on their credit reports can help improve millions of Americans’ FICO Scores.
Currently, unpaid medical debts fall under the category of collections — also a negative item that can stay on your credit reports for up to seven years. The new 180-day waiting period before medical debt is reported to the bureaus will allow time for consumers to take care of disputes or payment delays related to their insurance coverage.
In addition to the 180-day waiting period, the bureaus have agreed to remove previously reported medical collections that insurance companies eventually paid. Again, considering how long medical bill collections can remain on your credit report, this is a huge change that could help improve millions of consumers’ FICO Scores.
The changes are expected to go into effect soon, but not all of them will be implemented right away. It might take a while, for instance, to have professionally-trained agents investigating consumer complaints about credit report errors. Some changes will go live as early as this month, others might take a few years.
If you want to learn more about credit reports, how to dispute errors, and your credit reporting rights, check out our education pages.