This past year has seen a slew of changes to credit reports and credit scores for millions of American consumers.
In July, for example, the three main credit bureaus adopted new standards for reporting public records about consumers in 2017. The changes resulted in millions of people having tax liens and judgments deleted from their credit files.
In September, the credit reporting agencies overhauled the way medical debt is reported on consumer credit reports. Among other things, Equifax, Experian and TransUnion now remove medical debt from a credit report once it’s paid. The credit bureaus are also imposing a 6-month waiting period before adding medical debt to an individual’s credit report.
All these changes were welcome news to consumers looking to improve their credit scores.
What about 2018 and beyond? Here are 3 predictions about credit and credit scores in the future.
1. Credit monitoring will be more important than ever before
The fallout from the Equifax data breach is likely to be seriously felt by consumers in 2018 and in years to come. In mid-2017, cyber thieves hacked into Equifax’s databases and stole the Social Security numbers, address, dates of birth, and other information of up to 143 million Americans.
With such a treasure trove of personal data, it’s likely that the crooks will begin using this misappropriated data in the not-too-distant future. And since Equifax is just the latest victim in a long and continuing string of data breaches, it’s going to be vital for consumers to monitor their credit and be on the lookout for suspicious or unauthorized activity.
Any consumer can monitor his or her credit for free at Credit Sesame.
Surprisingly, in spite of the major media attention given to the Equifax hack, the majority of consumers (86%) have not placed a freeze on their credit report(s) following the news of the breach, according to research from Credit Sesame. That’s true even for those whose personal information was compromised in the breach. People with excellent credit scores were twice as likely than those with poor credit to have used a credit freeze, Credit Sesame found.
2. Alternative credit data will continue to grow
The trend toward using “alternative” credit data, such as rent or utility payments, is already firmly in place. In the future, expect to see this trend strengthen dramatically and expand, as credit scoring companies seek ways to better calculate risk and predict who’s likely to default on a loan and who is not.
Under federal law, it’s illegal for credit scoring formulas to include anything that isn’t predictive. That’s why factors like race, gender and religion play no role in credit scoring models. Furthermore, the Equal Credit Opportunity Act, forbids banks and other firms from denying creditworthy people credit or loans solely on the basis of race, religion, marital status, age, country of origin, or the fact that some or all of an applicant’s income comes from public assistance.
Despite these restrictions, the use of so-called psychometric factors in credit scoring will gain in intensity and frequency in the future, especially for the unbanked.
“Psychometric” refers to attitudes, beliefs and ethics and integrity. In short, under psychometric credit scoring models, people who exhibit positive ethical traits or beliefs are generally more favorable credit risks.
Such data and analyses are already used in lending decisions in other parts of the world, including Latin America, Africa and Asia.
In the U.S., any use of these psychometric considerations in credit scoring will ultimately have to pass fair lending standards in America, to make sure loan underwriting doesn’t negatively impact certain groups of people.
3. More regulation of the credit reporting industry will come
The increased number of data breaches, pressure from consumer advocates, and heightened scrutiny by groups like the Consumer Financial Protection Bureau all point to more regulation of the credit reporting industry in the future.
The added regulation, like much of the new credit rules enacted in 2017, is likely to result in more consumer-friendly guidelines and initiatives in 2018 and beyond.
Case in point: in mid-October 2017, the CFPB issued guidelines for how banks, fin-tech companies and data aggregators should handle consumer data. The CFPB’s guidance emphasized that customers should always own their own data, and have unfettered access to it, as well as the right to grant or decline access to that information.
As more and more firms get into the business of crunching consumers’ data – to assess risk and to help people better manage their finances – regulatory pressures are certain to intensify on all those involved in the world of credit reporting.
