Some consumers could see credit scores boosted
Pittsburgh Post-Gazette
Many consumers whose credit scores were bogged down by tax liens and civil judgments could get an average boost of 10 to 20 points thanks to the nation’s three largest credit-reporting agencies changing the information they include in their reports.
OnJuly 1, the three bureaus — Experian,Equifax and Transunion— will eliminate about 50 percentof all tax liens and 96 percentof civil judgments from credit reportsas part of a plan to ensure thatconsumer identification in thedata is accurate and current, accordingto the Consumer Data IndustryAssociation, a trade associationfor the companies.
The credit agencies will start holding public data to new standards. Public records data after July 1 must include a consumers’ name, address, Social Security number, and/or date of birth in order to appear on their credit file. Because Social Security numbers are often redacted for security reasons, many liens and judgments don’t always include all of that data, which could lead to some confusion.
Credit bureau representatives did not respond to questions regarding how the changes will affect risk modeling.
Whilethe impact to many creditscores will be modest, the boostmay allow some people to qualifyfor loans they may not have qualified for before.
Tim Coyle, senior director of LexisNexis Risk Solutions in Atlanta, said 11 percent of the U.S. population has either a tax lien or civil judgment against them.
Hesaid without this data it will bedifficult for mortgage lenders to properlyassess a consumer’s creditworthiness.It will change the creditindustry’s risk modeling, he said,because consumers with liensand judgments are twice as likely to default on their loans.
“Removinglien and civil judgementcontent increases a consumer’sscore by 15 to 20 points on average,”Mr. Coyle said. “Outlierscould see their score move higherby as much as 160 points.
“As you can imagine, most of the people with 800 credit scores don’t have liens,” he said. “The area this will affect is subprime borrowers. The change in credit reporting will put them in the mainstream of lending. There will be more risk added to the book of business.”
Equifax, Experian and Transunion are making the changes as part of a 2015 settlement with 31 state attorneys general who were investigating the agencies over the accuracy of credit reports. The new rules also prohibit the agencies from including medical debts on credit reports until after 180 days to allow insurance payments to go through.
Jill Gonzalez, an analyst with the Washington, D.C.-based website WalletHub, said consumers with lower credit scores are more likely to have civil judgments and tax liens on their reports.
“In fact, those factors could be why their scores are lower,” she said, adding that overall, the changes will be good for consumers. “Lenders still have plenty of information on an applicant’s creditworthiness, so their response should be a positive one brought on by more lending opportunities.”