Congress Wants To Ban Credit Scores | Major Changes Ahead

"53 percent of Americans are getting turned down due to bad credit and even worse 45 million Americans have no credit score whatsoever leading both Congress and big Banks to take matters into their own hands and develop a completely new credit scoring algorithm that would replace the current system as we know it allow people to get credit cards without having a credit score and take brand new items into consideration that could either help or hurt you depending on your situation and even more important but this is not just speculation or some random proposal from a no-name person in Congress this is actually beginning to go into effect right now"

"under this new program which would go into effect by the end of the year Banks would be allowed to take other aspects of a person's Financial history into consideration like their average account balance over time and whether or not they've ever overdrafted they hope that that would give a more realistic understanding of a person's credit worthiness and would open up more affordable financing options for borrowers in need"

"it's said that both Bank of America and JP Morgan have implemented something similar having reviewed bank account balances in lieu of a credit score and that resulted in credit card approvals for 700 000 additional customers since 2016."

"and pretty soon that bank account data could be shared between companies allowing you to get a credit card with another financial institution even if you don't directly bank with them"

"Fannie Mae and Freddie Mac are also considering allowing lenders to use different scoring options when evaluating new applicants that's because they say too many people are left out of the credit scoring system and as a result they become reliant on high interest payday loans and predatory lending which further holds them back"

"some companies are even willing to take into consideration phone bills and magazine subscriptions is a way to gauge whether or not you'll pay them back and it's working throughout the last decade almost every credit category saw boost of volume when alternative data was used in place of a credit score"

"partially this was due to a new scoring algorithm called the ultra FICO which factors in how much cash you have on hand through checking savings and money market accounts and as a result of that the number of customers with the subprime credit score has declined substantially"

"Congress wants to take control of the situation by developing Their Own Credit scoring model is outlined in need protecting your credit score act of 2021. Congress says the current system is broken and should not be in the hands of a for-profit company to determine the likelihood of who should and should not get a loan"

"they want to ban credit scores from being considered on a job application missed payments and defaults would be removed after four years instead of the seven like it is now they would limit the reporting of unpaid medical debt for up to a year and allow people temporarily impact by covet to have the credit file intact if they've claimed forbearance"

"a credit score is only one small component of a person's overall Financial stability other factors include that person's account balance their spending in relation to their income whether or not they've ever overdrafted from their account or bounced a check if they paid their rent on time or even if they've hit the like button for the YouTube algorithm"

"I would much rather lend somebody money who has no credit score but they keep ten thousand dollars in the bank and always pay the rent on time than it would someone who has a 730 credit score but who lives paycheck to paycheck and spends everything they make"

"it allows far more people access to Affordable Credit that could save the money like as it is now if you don't have a credit score and you need to borrow money you have no other choice other than to resort to Payday Loans or high interest price gouging to get yourself through as a result those people get held back even further for the exact same Services even if they've never paid late in their entire lives a new scoring model would help bridge that Gap and give them more affordable options that would more accurately reflect their ability to pay"

"critics say that the new score would make millions of borrowers appear safer than they actually are diluting the value of credit scores and reports right now the effectiveness of a credit reports is entirely dependent with airing on on the side of caution and if too many people get a boosted credit score without a proven track record that could undermine the calculation"

"FICO estimates about a third of people who don't have credit scores had a major negative event like a bankruptcy at some point which means they tend to be a riskier borrower but not always"

"opening up new credit options could come from the right intentions it's just too early to tell but as far as when this might happen it's already happening like I mentioned both Bank of America and JP Morgan have already started considering alternative information when considering new lending options and that's expected to continue throughout the rest of the year and Beyond"

"even though Congress does want to create their own non-profit credit reporting agency that would create their own credit scores as of today it's just a proposal and only time is going to tell whether or not something like this actually happens"

"I do think that lenders should take alternative information into consideration it makes sense that credit scores shouldn't just be limited to credit and opening up the door for more information can't hurt and would benefit so many people who just get caught without a credit score"

"I also agree that there's no substitute for actually having the experience of managing multiple types of loans and various types of credit that brings a lot of value to those borrowers that should not be ignored"

"in a perfect world a steady account balance should be enough to qualify you for a small line of credit and then from there the usual metrics of on-time payment history and types of loans should go into effect to me it's a lot more important to focus on a solution that gets people from something to nothing so from that perspective this new scoring algorithm is a good thing"