Revamping the Credit Score System

creditscore1Should the credit scoring system be revamped? In a controversial move, Rep. Maxine Waters (D-Calif.) proposed a federal amendment that would require the national credit bureaus to delete negative information such as late payments on credit cards and mortgages, foreclosures, and short sales after only four years. Currently, those negative marks remain for seven years.

If this passes, the “sins” that occurred during the housing bust years would be washed away now, enabling more Americans to start fresh sooner.

In Sweden, negative credit marks are deleted after only three years. In Germany, after four.

Arguing against a more lenient credit system is Stuart Pratt, president and CEO of the Consumer Data Industry Association. He said “82 percent of credit systems” worldwide require negative data to remain on record for four to 10 years.

On the side of leniency is the real estate and mortgage industry. They believe that four years is long enough to be “punished” for financial hardship, and that a revamped credit system would provide a much-needed boost to the housing and the U.S. economy.

Pratt told Kenneth Harney, syndicated columnist for “Nation’s Housing” that “it doesn’t seem right to us coming out of the Great Recession that we would erase predictive data.”

What do you think? Should late payments, foreclosures, and short sales be deleted from credit files after four years? Or remain as is for seven?