How recent credit score changes may be helping you
Recently, the three major credit reporting agencies removed nearly all civil judgments and about half of all tax liens from consumer credit reports. It’s all part of the National Consumer Assistance Plan (NCAP), a series of changes initiated by Equifax, TransUnion, and Experian. The actions were the result of a study by the Consumer Financial Protection Bureau that identified problems with credit reporting and recommended changes to improve credit reporting, accuracy, and quality, and to increase consumer credit education.
Improved reporting requirements
Under the NCAP, in order for any public record to be included on a credit report, it must include the name, address, and social security number or date of birth of the consumer. The provider of the information must also visit the courthouse at least every 90 days to obtain newly filed or updated public records.
Non-compliant reporting raises credit scores
The bureaus estimated that over half of all the tax lien records and 95% of all judgments did not meet the new data criteria, which required them to be excluded. Because both judgments and tax liens negatively impact credit scores, some consumers may have seen a boost, depending on which credit scoring model was used.
The most common impact was an increase of 11 points, but 18% saw gains of 30+ points. People who saw the most significant jump started with a relatively low credit score. In contrast, almost 20% of consumers saw a decline in their credit score once collections were removed, but it was more likely because those consumers worsened their scores in other ways.
Mortgage rates may still be impacted
Just because judgments and tax liens won’t necessarily be reflected in your credit score, doesn’t mean, however, that you can escape the financial consequences that they bring, especially if you’re applying for a mortgage.
Mortgage borrowers who have a judgment or tax lien were found to be 5 ½ times more likely to go into pre-foreclosure or foreclosure, so many mortgage lenders still want to see this type of information. Fannie Mae, for example, requires their approved lenders to follow their Selling Guide, which requires borrowers to pay off delinquent credit, like judgments and tax liens, at or before closing.
If you’ve seen a bump in your credit score, good for you! Leverage the momentum and keep your score moving up. Pay every bill on time, keep your credit utilization low, and monitor your credit report. Reporting errors are not uncommon, so check your report regularly for inaccuracies.
To request a copy of your free credit report, visit www.annualcreditreport.com By law, you are allowed one free copy of your credit report every 12 months from each of the three major credit bureaus — Equifax, Experian, and TransUnion.