Good Credit - Bad Credit signpost with sky backgroundYour credit report is much like the permanent record that you were afraid would follow you around for years when you were in school and ruin your life — except, it is real and the information on it can impact your ability to open new credit accounts, be approved for a mortgage and so much more. Unfortunately, the current credit reporting system is not friendly to consumers, as demonstrated by a recent Consumer Financial Protection Board (CFPB) post that highlights complaints about the industry as topping the list of what it receives on a monthly basis. Americans are bound by the information in their credit reports, but what happens when that information isn’t correct? Although it is possible to have credit reporting errors removed, the burden is on the consumer rather than the creditor, and it can be a long, frustrating process to get even the most egregious error wiped from your record. In response to these issues, the CFPB is pushing for reform, which has been proposed via a bill known as the Comprehensive Consumer Credit Reporting Reform Act.

What changes to credit reporting are being proposed?

The bill, which was introduced on May 19 and is sponsored by the House Financial Services Committee, proposes a number of changes to credit reporting as well as the credit score system. Many of these changes would impact homebuyers looking to open a mortgage most heavily, but overall, the changes would affect all U.S. citizens with a credit history. Here are some of the most important aspects of the bill:

Negative items would be removed from your reports sooner

Not only would this bill mandate that credit bureaus must remove all paid or settled debts within 45 days, but the maximum amount of time that a negative item could remain on your credit reports is four years — reduced from seven. Bankruptcies, which currently remain up to 10 years, would be removed after seven years. Additionally, any negative mortgage-related data that is connected to deceptive or predatory lending will be removed, which will help those who were victim to lenders who pushed them into mortgages they couldn’t afford.

You’ll be notified when negative information is reported

The first time a creditor reports negative information, such as an outstanding debt, to a credit bureau, it would be legally required to notify you. This would be especially helpful for victims of identity theft to catch accounts opened in their names sooner rather than later, since in theory they’d be notified as soon as the thief skipped out on a bill and it was sent to collections.

Simplified disputing and transparent reporting

Aimed at one of the chief complaints people have, new standards for disputing errors on your credit reports combined with a more transparent reporting process would hopefully improve the accuracy of the information on your credit reports in the first place. Accurate credit reports mean a much easier time for everyone, as it ensures those who need to open accounts or purchase a home aren’t stymied by credit reports riddled with errors.

Credit scores will be free once a year

Right now, all U.S. citizens are entitled to a free copy of all three credit reports once every 12 months from the government-operated website AnnualCreditReport.com. If you want to see your credit scores, though, you have to pay. This bill would make it mandatory for you to be shown your credit scores when you request your credit reports, at no cost.

Modernized credit scores

Rather than the current, outdated FICO models used by the top lenders, such as Sallie Mae and Freddie Mac, to determine your creditworthiness, modernized versions would be considered. Some of the factors going into these new credit scores will include the minimization or outright deference of disputed or paid off medical accounts, as well as incorporation of data that demonstrates good credit habits, such as timely rent payments.

How long will it take for any of this to become law?

Since the bill was just recently introduced, it will likely be at least a year before we see any real progress on it. Many proposed bills are altered along the path toward becoming a law, so there’s a chance not all of these proposed changes to credit reporting will become reality. Some credit industry experts have pointed out that many of these issues, especially those related to medical debt, have already been addressed and changes are underway. That said, there is still a lot of room for improvement, and it would be a great service to U.S. citizens if credit scores were available for free alongside the annual free credit reports already offered.

What can I do in the meantime to keep an eye on my credit health?

The best options for you right now are to take advantage of your yearly free credit reports, as well as taking advantage of credit report monitoring services that offer a free trial to check your scores without paying up. If you’d like to keep a close eye on your credit reports and scores for a long period of time, especially if you’re working to build your credit or have concerns about potential identity theft, a credit report monitoring service is a worthwhile investment. You can learn more about them by reading our credit report monitoring reviews.

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