There could be a new factor to your credit score: the president of the United States.
Independent candidate Bernie Sanders wants to eliminate the private credit reporting companies and substitute them with a government-managed credit registry. The proposal was released over the weekend and, at the same time, Sanders announced his plan to erase $81 billion in past-due medical debt, one of the main issues dogging Americans' credit reports today.
Sen. Sanders, I-Vt., says the public credit registry would be housed in the Consumer Financial Protection Bureau, the agency created in 2011 to protect Americans from predatory lenders in the wake of the financial crisis. According to Sanders' campaign, the new system would use a "transparent algorithm to determine creditworthiness that eliminates racial biases in credit scores" and allows Americans to access their credit scores for free. Medical debts would be excluded from people's reports.
"We must and we will remove the profit motive from assessing the creditworthiness of American consumers," Sanders' announcement reads.
There are three major, private credit reporting companies: Equifax, Experian and TransUnion. These companies collect data on people's borrowing patterns, including their payment histories and any potential bankruptcies or tax liens.
Critics of the current system point to how Equifax's insufficient data security practices allowed it to suffer a massive hack in 2017 that led to more than 140 million Americans having their personal information exposed and to studies that show people's credit reports, which can determine if they're hired for a job or how much they'll pay for a car, are riddled with errors.
"Credit reporting companies don't have a financial incentive to improve accuracy," said Amy Traub, associate director of policy and research at the liberal-leaning policy group Demos, which has advocated for a public credit registry. Sanders' version, she said, "would serve consumers as its central mission, and would have a mandate to invest in accurate data."
Our current credit reporting system also intensifies racial inequality, Traub said.
For example, credit reports track the time it takes a borrower to repay a loan, but, Traub said, "how long it takes to pay back a loan is based to a large extent on access to family wealth, which is a result of generations of discrimination in employment, lending, education and housing that produced a huge racial wealth gap."
(The median family wealth for white people is $171,000, compared with $17,600 for black people.)
Half of white people say they're "very confident" they'd be approved for credit, while just 20% of black Americans feel the same. Meanwhile, around 7% of white people with poor credit scores say there are errors on their report, compared with 40% of African Americans.
Credit reporting on a public registry could reduce racial biases by drawing on new data sources, such as income, and excluding others, like late payments on predatory loans, which are disproportionately relied upon by people of color, Traub said.
Although he wouldn't advocate for removing medical debt entirely from credit scores, credit expert Ted Rossman said it makes sense to shrink the role it plays.
"That's because the health insurance system is complex, and it can take a while to get reimbursed for doctor bills," Rossman said.
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Overall, Rossman said he's not in favor of abandoning the current credit reporting system. "I believe competition and the free market are good things," he said.
Advocates for a public credit registry say it will finally bring transparency to credit scores. "Credit reporting companies never reveal exactly how scores are created," Traub said. "The algorithm is a black box."
Under a public registry, she said, "the algorithms used to determine creditworthiness will be publicly available with clear explanations of what consumers can do to improve their credit."
Traub estimates it could take seven years to transition from a private credit reporting system to a public one, but that the effort would be well worth it.
"I think there's tremendous frustration in this country with a credit reporting system that is downright hostile to consumers," she said.