An overhaul of dispute resolution and how medical debt is reported are at the heart of an agreement announced Monday that will alter how credit reporting agencies work. One credit expert called the announcement a "colossal win for consumers."
Following an investigation by New York Attorney General Eric T. Schneiderman, the three largest credit reporting agencies approved a settlement that will change how they do business. Experian Information Solutions (EXPGY), Equifax Information Services (EFX) and TransUnion all agreed to put mechanisms in place to do such things as simplify the process to correct errors.
"This is a big deal," said John Ulzheimer, credit expert for CreditSesame.com. "Normally, it takes an act of Congress for the credit reporting agencies to change their practices."
Although the agreement is with New York state, the coming changes will affect all U.S. consumers. And the two biggest, Ulzheimer said, will be the ability to correct an error -- like debt shown as unpaid when you have proof that it was -- by dealing with a person, and a delay of at least six months before reporting health care debt.
The latter aims to allow for sometimes lengthy disputes with insurers about financial responsibility to play out, Ulzheimer said. A medical debt that is shown as paid by an insurance company will also be erased from a credit report rather than just be shown as paid.
When it comes to dispute resolution, consumers have complained about a typically frustrating process of trying to get a mistake fixed. The problem, Ulzheimer said, is that documentation often isn't reviewed and obvious mistakes are allowed to remain.
"Consumers are often frustrated by the dispute process, in part because it is heavily automated," said Geri Detweiler, director of consumer education for Credit.com. "It has to be given the volume of disputes, but hopefully these changes will help those with legitimate disputes to have the opportunity to get them resolved."
And consumers have plenty of disputes. The Federal Trade Commission conducted a study finding that one in four consumers have at least one error on their credit reports that could affect their credit score -- and ultimately their ability to borrow money.
Detweiler cautioned consumers about reading too much into the changes regarding the reporting of medical debt.
"It's important that there be an opportunity for these bills to work through the insurance billing process before they hurt consumers' credit scores," she said. "But it shouldn't lull patients into thinking they don't need to really stay on top of their medical bills. They do. This won't prevent medical bills from damaging their credit reports altogether."
Still, the changes are seen as monumental because of how important credit reports are to consumers.
"Credit reports touch every part of our lives," Schneiderman said in a statement. "They affect whether we can obtain a credit card, take out a college loan, rent an apartment, or buy a car -- and sometimes even whether we can get jobs."
Under the agreement, the credit reporting agencies also agreed to:
- Increasing the visibility of AnnualCreditReport.com, the official site where consumers get the one free credit report per year to which they're entitled.
- Allowing an additional free annual credit report to any consumer whose report has changed due to the filing of a dispute.
- Producing a consumers' rights campaign to spread the word about changes to dispute resolution and getting free credit reports.