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Report Assesses Impact of Credit Reporting Changes on Credit Scores

There are 8 million fewer individuals with a collection item on their credit report now compared with a year ago, representing about $11 billion in collection items that have disappeared, but, researchers from the Federal Reserve Bank of New York tried to conclude, did those disappearing items help or hurt the credit scores of those 8 million people?

The 8 million people, who had 19 million collection items on their credit report that are now gone, are part of a clean-up of credit reports by the three major credit bureaus — Equifax, Experian, and Transunion. The three bureaus instituted the National Consumer Assistance Plan, which put into place a number of requirements and changes to how creditors and furnishers report tradelines to the bureaus. Those changes included delaying the reporting of medical debts to 180 days from the date of service, compared with 90 days previously, more frequent and detailed reporting, removing collections accounts that did not arise from a contract, and being required to report only when there is sufficient information to link the account with an individual’s credit files through the individual’s personal information.

In examining who benefited and by how much, the researchers found that, as can be expected, individuals with lower credit scores tended to be the ones where items were removed from their credit reports. About 67% of individuals with a credit score below 620 had an item in collections on their report before the NCAP was put into place, a figure which dropped to 63% afterwards. But, one in five individuals actually had their credit scores decline after the bureaus instituted the NCAP. The other 80% saw no change or an increase in their credit score. About 18% of individuals had their credit score go up by at least 30 points, according to the researchers.

Credit reporting has been a hot-button issue in collections for some time. The risks associated with reporting to the credit bureaus — an increased number of disputes that need to be investigated and more lawsuits filed against collection agencies — can outweigh the risks of reporting — namely acting as a tool to push individuals to make payments in order to have the negative items removed from their credit reports, but many clients require agencies report regardless of the impact.

Short of announcing any huge or ground-breaking recommendations, the researchers concluded that the higher credit scores will help individuals, especially those with the lowest credit scores who may need the most help, but “the immediate impact of the removal of collections will be muted if the beneficiary’s credit record continues to be tarnished with other negative information.”


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