Biden’s order could make it easier for Americans to borrow
An important part of President Joe Biden's executive order this month could ultimately make it easier for Americans to qualify for loans on more favorable terms.
The ordinance - which includes major technology, healthcare and labor reforms - also instructs the Consumer Financial Protection Bureau to put in place rules that would allow bank customers to download and take their banking information with them. This would allow consumers to prove their creditworthiness to lenders outside of the traditional credit reporting and scoring system.
Read more: How to Correct a Mistake in Your Credit Report
"Banking information enables lenders to understand in great detail how much a person's cash flow is, how much money they are making each month, how much they are spending, and how much they have left at the end of the month," said Jesse Van Tol. CEO of the National Community Reinvestment Coalition.
President Joe Biden signs an executive order promoting competition in the American economy in the State Dining Room of the White House on July 9, 2021. (Photo: Demetrius Freeman / The Washington Post via Getty Images)
A credit score, on the other hand, may not give a full and accurate picture of a person's ability to pay for a loan or credit card, Van Tol said.
"Using your banking information as proof of payment for things that are not recorded [on a credit report] - like insurance and rent - can actually show that you are paying bills on time," said Van Tol.
A recent study by TransUnion found, for example, that rent payments can increase a person's creditworthiness by 60 points if this history is included in a credit report. The problem, however, is that most landlords don't report these payments to the credit bureaus, so lenders don't use the track record when reviewing loan applications.
Bad credit can result in fewer credit options. (Photo: Getty)
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 track record of these payments appears on bank statements.
“This could signal a move away from 'black box' credit reporting to a time when consumers can prove they are responsible enough to borrow and invest by providing transactional data to lenders and brokers themselves Said Linda Sherry, director of national consumer priorities.
While the Dodd-Frank Act Section 1033 gave the office the authority to give bank customers access to their data in 2010, it has been slow to establish itself. According to the regulation file, the comment on the regulation was closed in February 2020 and will move into the pre-regulation phase by April 2022.
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Marissa is a reporter for Yahoo Money and Cashay, a new personal finance website. Follow her on Twitter @MarissaLGamache.
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