You may know that your credit report can impact things like getting an apartment, buying a car, or even finding employment. You may also know how I feel about the credit reporting industry (I really don’t like it), but what you might not know is that whether or not you are approved for credit might depend entirely on the credit reporting agency employers (or others) use.
Equifax recently changed its policy for Chapter 13 filers - but you won’t believe why this policy was changed.
One Credit Agency is Not Like the Others Equifax competitors TransUnion and Experian leave a flag on a person’s credit file when that person has filed for Chapter 13 bankruptcy. Both of those companies flag that file for 7 years. Until this week, Equifax flagged files for 10 years. That’s right - the company added an extra 3 years of flagging to credit reports.
Equifax has since changed the flag to 7 years, but consumers that filed for Chapter 13 and were denied credit after 7 years may have been turned away due to Equifax’s unique policy. When probed by journalists, Equifax did not provide any reason why Chapter 13 flags lasted 10 years instead of 7.
Usually, if you file for Chapter 13 bankruptcy, you have to make payments for 3 to 5 years. For some unknown reason, credit agencies leave a flag on your file for 7 years. So even if you are finished making payments, it is entirely possible that you will not be approved for any kind of credit for two years following that last payment. Shocking, isn’t it?
What if you file for Chapter 7 bankruptcy? All three credit unions will flag your file for 10 years.
Why can credit agencies get away with these flagging terms? Overly simplified: they are not heavily regulated, and they contribute heavily to the politicians in Washington D.C to keep it that way. Equifax was allowed to get away with flagging Chapter 13 files for 10 years for decades. This policy was just changed now.
Nothing to be Done
While unfair, Equifax did not act illegally. Credit agencies largely make up their own governing rules and simply have to comply with the Fair Credit Reporting Act. That act notes that the longest a bankruptcy filing can stay on someone’s credit report is 10 years. Technically, Equifax did not act illegally.
Fair? No. Legal? Yes. What we need here is for Congress to revisit the Fair Credit Reporting Act and hold the big three credit reporting agencies accountable to the citizens of the United States.