I just took a mandatory Colorado real estate update class, and one thing that always is stressed in these classes is racial equality. It is our job as real estate agents to make sure consumers, no matter their religion, disability, race, color, sex, familial status, or national origin, are not discriminated against. Colorado has always been even stricter, adding in creed and sexual orientation. In addition, those in the mortgage lending industry are also held to this standard in the state of Colorado.
It is in this same vein that President Biden is proposing to scrap the three credit reporting agencies, Experian, Equifax, and Transunion, because of a lack of transparency in how credit scores are assigned to individuals. As a buyer's agent that works closely with buyers and lenders to get pre-approved in an ultra-competitive market, this will have a direct impact on how buyers are qualified.
Whether transferring from private to public will turn out well or not, I don't know. But I can say that penalizing consumers for paying off a home mortgage early or for applying to a number of lenders or for not having enough credit cards opened (in the form of lowering credit scores) is ridiculous. Hopefully this private to public transformation eliminates the lack of transparency currently present.
Below is the article in full, as it appears in Yahoo Finance this week...
Biden Wants to Shut Down Credit Bureaus – What Would That Mean for You?
Ann Logue, Yahoo Finance, February 5, 2021
One of the more fascinating platform items of the Biden presidential campaign was the idea of transferring consumer credit ratings from Equifax (NYSE: EFX), Experian PLC (OTC: EXPGY) and TransUnion (NYSE: TRU) to a public registry under the Consumer Financial Protection Bureau.
As reported by the Balance, this idea was examined in depth in a paper published by a think tank called Demos in 2019. One major takeaway of that paper was that “decisions drawing on credit data reproduce and spread existing racial inequality, making it harder to achieve true economic equity.” Demos proposed the idea of a public credit registry in that paper.
The CFPB has a new acting director, Dave Uejio, who recently replaced Trump appointee Kathleen Kraninger. In a CFPB blog post dated Jan. 28, Uejio stated his two main priorities would be “(1) relief for consumers facing hardship due to COVID-19 and the related economic crisis, and (2) racial equity.” But nowhere does his statement specifically mention the idea of a public credit reporting agency.
The three primary reporting agencies analyze consumer borrowing and repayment patterns. They assign scores that are then used to assess a person’s creditworthiness. This can affect their access to an apartment and their ability to hold certain jobs in addition to the amount they can borrow and the interest rates that they are charged. It’s big business — enough to support three public companies (although they have other businesses as well).
While lenders certainly have the right to determine the risk of a potential borrower, the problem is the lack of transparency in the process. The three bureaus have slightly different calculation methods and data sources, which can result in the same person having three very different credit scores. Some of the criteria seem unusual and can be gamed. For example, it is better to have a high-limit credit card and only charge part of it than to charge the same amount on a low-limit credit card. Paying off a mortgage can reduce a credit score.
In addition, errors are common but difficult to correct. There’s some evidence of racial biases as well, which in turn affect access to housing, certain jobs and credit. People have the right to free copies of their credit report once a year but have to pay beyond that.
The Biden proposal would improve people’s access to their credit and may lead to standardized calculations. It could also lead to volatility if the criteria used changed with each presidential administration. There are also other credit bureaus out there that use different scoring criteria, often used by lenders that work with customers who have bad credit. It’s unclear how this proposal would affect them.
Cover Image by janeb13 from Pixabay
Please feel free to reach out to me to discuss your move into or out of Northern Colorado. Thank you!
James Sack, REALTOR®
Coldwell Banker Residential Brokerage
1109 Oak Park Drive | Fort Collins, CO 80525
C: (970) 217-9705 | O: (970) 223-6500 | E: James.Sack@coloradohomes.com | W: www.JamesSack.com