Poor Credit Reports Start Vicious Economic Cycle; Can It Be Stopped?

January 14, 2014
The National Consumer Law Center (NCLC) has released a paper on the long-term fallout from foreclosure on borrowers, who can be impacted for years by the hit to their credit.

The organization hopes the information will help credit files from being seen in black and white, instead of taking into account contributing factors like medical emergencies and abusive lending. "For millions of Americans, bad credit records are the result of bad luck, not bad character," explains NCLC attorney Chi Chi Wu, who penned the report. "We hope this paper will prompt the development of methods to judge consumers so that they are not unfairly penalized by job loss, illness, or other life circumstances outside of their control."

The study notes that foreclosure and recession generate a cycle of "economic harm" whereby credit scores decline. That, in turn, prevents consumers from getting jobs, affordable housing, and insurance; additionally, black marks on credit files due to foreclosure typically prevent them from buying another home for several years. The consumer's inability to recover, NCLC argues, chokes the overall economy. The group recommends easing the negative impact on consumers by keeping bad mortgage information on credit reports for a maximum of three years, instead of seven currently; banning insurance carriers, employers, and landlords from considering credit reports; looking at alternatives to traditional credit scores; and making exceptions for extraordinary life events.

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