Hello 2021, goodbye credit reporting agencies?

What we need is a system that works for both financial lenders and consumers alike

For those of us who have been in the mortgage industry for any length of time, we understand the complexities surrounding guidelines, the importance of staying up to date on key changes within the industry and how our communication to both our clients and partners is imperative in order to build and maintain relationships.

In this regard, 2021 has not disappointed, as it has already been full of the stark reality that the changing of the guard within the White House hasn’t given us much insight into the future of our housing market. One thing that has certainly been a topic of conversation is the recent rumblings that President Biden’s administration may look to do away with or revamp the three major credit reporting agencies as a way to bridge potential disparate treatment and help eliminate racial bias.

Interesting? Absolutely. Welcomed? Possibly.

One of the larger points of contention that I hear almost daily from consumers is around credit scores and the variances between the scoring metrics when it comes to mortgage lending. Historically, consumers have found themselves striving to obtain the highest credit scores possible in the hunt for the best interest rates, the most favorable loan terms and to obtain personal goals, which ultimately can lead to their own personal financial freedom.

This same population of consumers also feels the sting when one mistake, such as a missed payment — whether intentionally or reported incorrectly — can undo years of hard work. For some consumers, the lack of education surrounding these scoring metrics can produce a snowball effect both for them and what they pass down to their children.

While there are plenty of positives when it comes to credit reporting, it has been used more as a protection for the financial industry than a tool for consumers to build and sustain generational financial empowerment, which could be a great shift if this plan can find its footing.

The mortgage industry has evolved with new guidelines and consumer-friendly regulations put into place, yet we are still relying on a monopolized credit reporting system that not only gives us each a score but deems one individual more credit-worthy than the next, without a ton of information available around that data or how it is derived.

That same data is stored and housed by the reporting agencies, but also sold to outside parties to continuously market. There are several different scoring models which are easily lost in translation, so a more fluid and transparent system could be a refreshing change as it would streamline and take the guesswork out of consumer credit reporting and how it could be one of the most powerful tools in their financial toolbox.

A reset of sorts may be met with some opposition, but ultimately what we need is a system that works for both the financial lenders and the consumers alike. This is not to say that the current system with the big three is all bad, but now may be a great time to explore some more modern approaches to how credit reporting is used for and against consumers.

There are certainly many arguments on all sides of the coin around this potential change, but one thing that we can probably all agree on is that implementing a system that is fair, accurate and works for all demographics may be a welcome sight within the financial and lending hub. I am sure we will see more around this topic in the near future so it should be interesting nonetheless to see how we in the industry may face yet another change and how we all handle it.          

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Tracy Chongling at [email protected]

To contact the editor responsible for this story:
Sarah Wheeler at [email protected]


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