Bank of America and JPMorgan Chase, two of the nation’s largest banks, will update consumers’ credit reports to remove debts that had been eliminated in bankruptcy, the New York Times reports. Such bills often remain on a consumer’s credit report, despite being legally discharged and no longer owed, and they can seriously damage a consumer’s credit standing.
The plans to update credit reports came in the midst of lawsuits playing out this week in Federal Bankruptcy Court in White Plains, N.Y., against Bank of America, Chase, Citigroup and Synchrony Financial (formerly GE Capital Retail Finance), the Times reports. Prosecutors allege the banks ignored bankruptcy discharges to make more money when selling off bad debts, and if customers complained about the information on their reports or that they were being pursued for the debts, the suit alleges the banks would refuse to fix the credit reports unless the debts (which the consumers don’t owe) were paid.
Bankruptcy is often a last resort for a heavily indebted consumer, but as damaging as it can be to have a bankruptcy on your credit report, it can be the best way to move on from credit problems and get a fresh start. However, if the debts wiped out in bankruptcy continue to be reported as past due or charged off, it’s harder to get that fresh start.
According to court documents, Chase and Bank of America have agreed to make sure debts discharged in bankruptcy are properly recorded as no longer owed on credit reports, the Times reports. The banks have not admitted wrongdoing. The changes could potentially help about 1 million consumers’ credit.
“The bank believes that its reporting on sold credit card accounts to credit reporting agencies is accurate and consistent with credit reporting agency policies,” wrote a Bank of America spokesperson in an email to Credit.com. “However, given the issues raised by the Court, we have made the decision to delete credit reporting for the sold credit card accounts.” Chase declined to comment.
Synchrony Financial also agreed to offer similar changes for consumers last year, if temporarily, according to the Times.
Negative information on credit reports can disrupt many areas of your life. Some employers run credit checks on potential employees, so negative information can jeopardize a consumer’s job prospects, which can cause all sorts of financial problems. On top of that, a utility provider or other service company may require you to pay a deposit to open an account if you have poor credit.
Given how much impact your credit standing has on your daily life, it’s important to keep an eye on it for errors, so you don’t unfairly experience the consequences of bad credit. You can get a free credit report summary every 30 days on Credit.com, to keep up with your credit standing in between the times you request your free annual credit reports.
More on Credit Reports & Credit Scores:
- How to Get Your Free Annual Credit Report
- How Do I Dispute an Error on My Credit Report?
- How Credit Impacts Your Day-to-Day Life