Millions Could See Credit Score Boost July 1



Millions of people could see their credit score automatically increase July 1, 2017, when the three major credit reporting agencies start removing tax liens and civil judgments from credit reports.

Incomplete information from tax liens and judgments will be removed from credit reports, whether the information is wrong or not, through changes agreed to by the credit reporting agencies – Equifax, Experian, and TransUnion.

The data will be removed to keep incorrect information off credit reports, such as when a civil judgment over unpaid debt against Tom James Jones is incorrectly listed on a credit report for Thomas Jimmy Jones.

Even if the information is correct, such as if Thomas Jimmy Jones really does face a civil judgment, it would be removed from the report if it doesn’t include three of four data points: a person’s name, address, Social Security Number or date of birth.

The change could also remove legitimate liens or judgments from a credit report because many liens and most judgments don’t include all three or four identifying data points.

The credit agencies have also agreed to the following requirement: information on credit reports should be updated at least every 90 days concerning judgments and tax liens from public court records.  If not, they’ll be removed from the reports.

Effects on Credit Scores

For people with a tax lien or civil judgment on their credit report, they could see a big enough jump to help them get approved for a credit card or auto loan, among other things.

In contrast to that, negative and inaccurate information on a credit report can prevent someone from getting a job or renting an apartment.

Citing FICO data, the Wall Street Journal reports that just under 11 million people will have their credit score improve by 20 points or less, and about another 700,000 people will have their credit score improve by at least 40 points, according to FICO.1

Why the Change?

The changes are happening partly due to consumer complaints filed against the three credit reporting agencies for allowing inaccurate information in credit reports, along with difficulty getting said information corrected.

The Consumer Financial Protection Bureau issued a report requiring changes, which cited the need for updating records more often and the need for better criteria concerning identity-matching.2

Tax liens, for example, may not be checked every 90 days simply because of a lack of manpower at the credit agencies.

Civil judgments, such as from a debt collector taking a debtor to court, may not have a Social Security Number, and it’s unusual for a judgment to have a date of birth listed.  Under the new policies, not having both of those will automatically remove the judgment from the credit report, even if everything else is accurate.

If consumers want to make sure that paid tax liens – or anything else that will help their credit score – are accurately listed on their credit reports, they should check their reports themselves.

Credit May Look Better Than It Is

About half of tax liens and nearly all judgments will be removed from credit reports based on the credit reporting changes, according to the Wall Street Journal.  The records may disappear, but the people with poor credit may still be poor credit risks.

LexisNexis Risk Solutions, a company that provides public record information to the credit bureaus, has found that consumers with judgments or liens are twice as likely to default on loan payments, according to the Wall Street Journal.

While the changes will help many people with inaccurate liens or judgments, the changes will also help people, who truly have liens or judgments, end up with better credit scores than they should.  That means people who are still a credit risk could see a bump of 10-20 points in their credit score, which could be enough to qualify them for a loan they can’t handle.

Consequently, lenders may get a boost in customers, but it might cost them more in unpaid loans.  To mitigate such risks, lenders may charge borrowers more, and they may have to go to the courthouse themselves to check public records.

Less of an Impact with Older, Negative Data

An older lien or other negative information on a credit report can hurt your credit score much less than a newer problem.

Late payments can hurt a credit score more than tax liens or judgments.  The older a lien or judgment is, or anything else derogatory on a credit report, the less it will affect a credit score.

However, the higher the credit score is, to begin with, the more affect derogatory information will have on it.

FICO data shows that for a consumer with a 680 FICO score, being 30 days late paying a mortgage bill will drop their score by up to 80 points and will take nine months to recover fully.  Someone with a 780 credit score could have their score drop by up to 110 points, and it could take three years to recover.

The changes on reporting tax liens and judgments will have the most impact on people with similar names to people who have such things ruled against them.

If your name is John Doe, you don’t want another John Doe with a tax lien and a different birthday to affect your credit score.  What’s the best way to deal with that or any other potential problem on a credit report?  Check your credit report for errors, on an annual basis, and get them fixed.

Have more questions about how credit reports and scores affect each other and influence your finances?  Talk to a Money Coach who is a Certified Credit Counselor and Certified Credit Report Reviewer (CCRR®).  Call 888-724-2326 today.

 

1Andriotis, AnnaMaria. “Credit Reports to Exclude Certain Negative Information, Boosting FICO Scores.”  The Wall Street Journal, 1 March 2017, https://www.wsj.com/articles/credit-reports-to-exclude-certain-negative-information-boosting-fico-scores-1489338002?mod=e2fb.  Accessed 6 June 2017.

2“Supervisory Highlights Consumer Reporting Special Edition.”  Consumer Financial Protection Bureau, March 2017, http://files.consumerfinance.gov/f/documents/201703_cfpb_Supervisory-Highlights-Consumer-Reporting-Special-Edition.pdf.  Accessed 6 June 2017.