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THE END OF CREDIT SCORES | Major Changes Explained
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Recently, there is a push to end the current credit scoring system, and to create a new credit score based on different criteria - here's what this means for you - Enjoy! Add me on Instagram: GPStephan
The YouTube Creator Academy:
My ENTIRE Camera and Recording Equipment:
Why the new plan wants to get rid of the current credit score:
First, the 3 big credit scoring agencies: Experian, Equifax, and Transunion - are all privately held, FOR PROFIT corporations - that gather data, and then develop their own, independent algorithms to predict how likely YOU are to re-pay a loan.
SECOND, the current credit scoring system is often HIGHLY INACCURATE - and it’s difficult to correct false information. In fact, according to the FTC, 20% of ALL people have at least 1 error on their credit report….and those errors have the potential to lower your credit score, hurt your ability to get a new line of credit, and cost you a higher interest rate.
THREE: The current credit scoring model leaves a LARGE PORTION of the population “credit invisible.”
That’s why 20% of the US Population falls into the “invisible” category, where they don’t have a credit score, simply because they’ve never needed credit to begin with.
FOUR - The Credit Scoring Model contradicts itself…a LOT.
Here’s just a few examples:
-If you want a good credit score, you’re REWARDED for having higher credit limits, along with the ability to take on even MORE DEBT, because THAT is how you establish your payment history.
-You’re also REWARDED for keeping your accounts open AS LONG AS POSSIBLE, even if you don’t use those accounts - otherwise, the average length of your account history will drop, which then lowers your score.
-You’re ALSO REWARDED if you take on different TYPES of loans, like credit cards, auto loans, mortgages, and leases - because then, lenders see that you can responsibly handle multiple types of debt…and that’s GOOD!
-But, you can also get PENALIZED for opening up TOO many credit lines, too fast…because that shows up as a hard inquiry on you report, and that’s BAD.
AND FIFTH - they say that the credit scoring system excludes too many people.
Since credit scores reward extensive credit history - younger borrowers suffer from lower credit scores, and higher interest rates - just because they aren’t old enough to have build up a proper profile. Lower income applicants are also 8x more likely to lack credit history, because they’re more likely to rent, and rent payments don’t show up on a credit report, which means they have a lower credit score, which means they’re charged a higher interest rate…which means, they have less money left over, and the cycle continues.
So, now - the SOLUTION being proposed is creating a NEW, MORE FAIR SYSTEM that would work like this:
They want to create a publicly run Credit Reporting Agency within the Consumer Financial Protection Bureau that would eventually replace the current for-profit credit system, with a NEUTRAL, NONPROFIT PUBLIC entity.
As they say, it would deliver transparent scoring, provide greater data security and offer a publicly accountable way to resolve disputes. They would also CAP the interest rate no higher than 36%, clean up debt collection practices, and even potentially - discharge student loans in bankruptcy.
Things like bank account data, rental payments, and utility payments would also be a factor in determining a credit score, and negative information would fall off after 4 years, instead of the 7 it is now.
If you already have a good credit score - just continue to pay your rent and utilities on time…and you’ll be fine. And if you’ve got a BAD credit score…then you should continue paying your rent and utilities on time.
*Some of the links and other products that appear on this video are from companies which Graham Stephan will earn an affiliate commission or referral bonus. Graham Stephan is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available.
The YouTube Creator Academy:
My ENTIRE Camera and Recording Equipment:
Why the new plan wants to get rid of the current credit score:
First, the 3 big credit scoring agencies: Experian, Equifax, and Transunion - are all privately held, FOR PROFIT corporations - that gather data, and then develop their own, independent algorithms to predict how likely YOU are to re-pay a loan.
SECOND, the current credit scoring system is often HIGHLY INACCURATE - and it’s difficult to correct false information. In fact, according to the FTC, 20% of ALL people have at least 1 error on their credit report….and those errors have the potential to lower your credit score, hurt your ability to get a new line of credit, and cost you a higher interest rate.
THREE: The current credit scoring model leaves a LARGE PORTION of the population “credit invisible.”
That’s why 20% of the US Population falls into the “invisible” category, where they don’t have a credit score, simply because they’ve never needed credit to begin with.
FOUR - The Credit Scoring Model contradicts itself…a LOT.
Here’s just a few examples:
-If you want a good credit score, you’re REWARDED for having higher credit limits, along with the ability to take on even MORE DEBT, because THAT is how you establish your payment history.
-You’re also REWARDED for keeping your accounts open AS LONG AS POSSIBLE, even if you don’t use those accounts - otherwise, the average length of your account history will drop, which then lowers your score.
-You’re ALSO REWARDED if you take on different TYPES of loans, like credit cards, auto loans, mortgages, and leases - because then, lenders see that you can responsibly handle multiple types of debt…and that’s GOOD!
-But, you can also get PENALIZED for opening up TOO many credit lines, too fast…because that shows up as a hard inquiry on you report, and that’s BAD.
AND FIFTH - they say that the credit scoring system excludes too many people.
Since credit scores reward extensive credit history - younger borrowers suffer from lower credit scores, and higher interest rates - just because they aren’t old enough to have build up a proper profile. Lower income applicants are also 8x more likely to lack credit history, because they’re more likely to rent, and rent payments don’t show up on a credit report, which means they have a lower credit score, which means they’re charged a higher interest rate…which means, they have less money left over, and the cycle continues.
So, now - the SOLUTION being proposed is creating a NEW, MORE FAIR SYSTEM that would work like this:
They want to create a publicly run Credit Reporting Agency within the Consumer Financial Protection Bureau that would eventually replace the current for-profit credit system, with a NEUTRAL, NONPROFIT PUBLIC entity.
As they say, it would deliver transparent scoring, provide greater data security and offer a publicly accountable way to resolve disputes. They would also CAP the interest rate no higher than 36%, clean up debt collection practices, and even potentially - discharge student loans in bankruptcy.
Things like bank account data, rental payments, and utility payments would also be a factor in determining a credit score, and negative information would fall off after 4 years, instead of the 7 it is now.
If you already have a good credit score - just continue to pay your rent and utilities on time…and you’ll be fine. And if you’ve got a BAD credit score…then you should continue paying your rent and utilities on time.
*Some of the links and other products that appear on this video are from companies which Graham Stephan will earn an affiliate commission or referral bonus. Graham Stephan is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available.
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