A key element of Executive Order of President Joe Biden this month could finally make it easier for Americans to qualify for loans and on more favorable terms.
The order – which includes sweeping reforms for technology, health care, and Workforce – also orders the Consumer Financial Protection Bureau to issue rules that would allow bank customers to download their bank details and take them with them. This would allow consumers to prove their creditworthiness to lenders outside of the traditional credit rating and assessment system.
“Bank data allows lenders to understand in detail what a person’s cash flow is, how much money they take in each month, how much they spend and how much they have left at the end of the month,” said Jesse Van. Tol, CEO of the National Community Reinvestment Coalition.
A credit score, on the other hand, may not give a complete and accurate picture of a person’s ability to pay off a loan or credit card, Van Tol said.
“Use your bank details as a payment record for things that are not recorded [on a credit report] – like insurance and rent – can actually show that you pay your bills on time, ”Van Tol said.
For example, a recent study by TransUnion found that rent payments could increase someone’s credit rating 60 points, if this history is included in a credit report. But the problem is, most homeowners don’t report these payments to the credit bureaus, so the history isn’t used by lenders when reviewing loan applications.
Likewise, recurring bills such as utility payments and streaming subscriptions are not automatically included in credit reports. In some cases, they can be added through tools offered by some credit bureaus.
But the history of these payments shows up on bank statements.
“This could signal a shift from ‘black box’ credit reports to an era where consumers can prove they are responsible enough to borrow and invest because they can provide transactional data to lenders and brokerage houses themselves. “said Linda Sherry, Director of National Priorities. for consumer action.
While the office was given the power to give bank customers access to their data in 2010 with the Dodd-Frank Law Section 1033, he was slow to solidify a rule. According to the regulations, the rule-making commentary ended in February 2020 and will move to the preliminary stage by April 2022.