The three major credit bureau reporting agencies, Equifax, Experian, and TransUnion will stop reporting most tax liens and judgments on credit files beginning July 1, 2017. The news made headlines in the Wall Street Journal and has significant implications for millions of consumers facing lower credit scores due to derogatory information found in public files.
What is Changing & What It Means for Consumers
Credit bureaus serve as a means for collecting consumer credit information in a single place. They aggregate data reported to them by companies and organizations with regard to consumer payment histories. The credit bureaus track lending applications, credit limits, account balances, payment history and other information to assist lenders and other companies who need to evaluate a consumer’s credit worthiness. In addition to aggregating information reported to the credit bureaus, lenders also scour public records and include any data appearing to connect with a specific individual. Items such as tax liens and judgments appear on these public records.
Beginning in July, credit bureaus will no longer include most information found in public records. They began removing delinquent information such as parking tickets, gym memberships, and other delinquencies from reports several years ago. Now, the expanded elimination of public data further diminishes the reporting of this information and will assist consumers working to improve their credit scores.
The new terms require the judgment or tax lien to include three of the four following pieces of information: the customer’s name and address, and a social security number or date of birth. In addition to these records, the lien or judgement must be updated at least every 90 days buy the company lodging the complaint. Failure to meet either of these new standards will lead to the deletion of the account from an individual’s credit file.
Fortunately for consumers, most public records do not include three of the four required pieces of information now required to include the data on credit bureau reports. Experts anticipate that up to 12 million consumers will see an increase in their credit score in the latter half of the year, due to the changes.
Two major events play in the current changes. In 2015, 31 Attorney Generals sued the three credit bureaus arguing that incorrect data on consumer credit files hurt innocent customers. A subsequent settlement resulted in changes to the way the bureaus report information which included the elimination of non-contract files such as traffic tickets. They also began removing delinquent accounts after full payment, or a settlement occurred. Lastly, they addressed medical debt by lengthening the time before reporting delinquencies and removing past dues after insurance companies made payments.
Then, last month the CFPB (Consumer Financial Protection Bureau) issued a report highlighting continued problems with the accuracy of public data and called for renewed scrutiny of public records. They expressed ongoing concerns with regard to reporting standards and issued a call for credit bureaus to make additional efforts to match the information found in public records with the correct consumer. The CFPB voiced warnings over infrequent account updates, leading to higher levels of errors and issued a list of recommendations for the credit bureaus to adhere.
Credit bureaus rarely adjust reporting of information because they are more of an aggregator, previously leaving consumers to dispute inaccuracies and lenders to verify claims. They collect information provided to them and pass it along to companies who pay to view the report. Scoring companies such as FICO and Vantage also use the collected data to compute a credit score, which signifies the consumer’s creditworthiness and calculates the risk of default with a three-digit number. Tinkering with data could lead to undermining the credit reporting system for lenders and others who use the information to make decisions on credit and other consumer applications.
In 2011, there were 8 million complaints initiated by consumers claiming errors in credit files. Such errors can eliminate lending opportunities, impede their ability to gain employment, rent an apartment, or even secure the lowest insurance rates. With credit reports and credit scores used well beyond the lending arena, accuracy becomes increasingly important.
Given the pressure from regulators, the three credit bureaus made the decision to include stricter guidelines when reporting information found in public records. The result of this decision will help consumers facing inaccurate reporting of judgments and liens, but also eliminate those reported correctly. Unless companies do a better job of identifying whom a judgment belongs to, allowing automated searches to attach the right public record to the right person, customers will not face poor credit as a result of these filings. The move applies to both current and future reporting of tax liens and judgments.
Impact on Consumer Credit Scores
FICO, the leading credit score provider, suggests the changes will impact approximately 11 million consumer credit scores with an increase of less than 20 points. Another 700,000 credit scores could rise more than 40 points, with 300,000 falling somewhere in between.
Delinquencies, late payments, and other negative information remain on credit files, providing lenders with a seven to ten-year repayment history, depending on the report. Late payments and collection accounts tend to remain in a credit file for seven years after the initial default date. Selling the account to multiple collection companies does not reset the clock. Bankruptcies remain on credit file for ten years, in most cases.
Lack of reporting does not impact the consumer’s liability for the debt. Companies winning a judgment can still garnish wages and place liens on property in an effort to collect on the account. Lenders reviewing a consumer account may also check public records themselves to identify any tax liens or judgments, but it will no longer factor into the credit scores or remain on credit files unless it meets the above parameters.
Consumers welcome the changes and will help those working to improve credit by eliminating judgments and tax liens, giving millions a fresh start.
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