July 5th, 2017 4:49 AM by Jackie A. Graves
The credit scores of up to 14 million people could begin to
rise as credit reports are scrubbed of nearly all civil judgments and many tax
advocates hail the data’s deletion as a long-overdue victory for people whose
scores were unfairly dinged by inaccurate information. Others worry the changes
could inflate the scores of risky borrowers and have a catastrophic impact on
shouldn’t expect an immediate jump in their scores, however.
1, the three major credit bureaus — Experian, Equifax and TransUnion — will
exclude new records of civil judgments and tax liens that don’t have minimum
identifying information including Social Security numbers or dates of birth as
well as any record of judgments or liens that hasn’t been updated within 90
days. The bureaus also will begin to remove old records of judgments and liens
that don’t meet the enhanced standards, a process that’s expected to take
several weeks, says Francis Creighton, president and CEO of the Consumer Data
Industry Association, a trade group that represents the bureaus.
Credit scoring company FICO
estimates that 6 to 7% of people who have FICO scores will have a tax lien or
civil judgment purged from their records. Tax liens stem from unpaid state or
federal tax bills, while civil judgments are court rulings from lawsuits filed
over old debts, unpaid child support, evictions and other noncriminal matters.
Judgments and liens show up in the public records section of credit reports Opens
a New Window.and can seriously damage credit scores Opens
a New Window..
credit bureaus aren’t being forced to delete this information. They’re doing it
voluntarily, in large part because these public records weren’t properly
verified or updated, generating many consumer complaints and disputes.
credit bureaus might have found a way to keep the records if the data were
overwhelmingly valuable to lenders, their primary customers. But that doesn’t
seem to be the case.
credit bureaus, creditor scorers FICO and VantageScore Solutions and mortgage
buyer Fannie Mae have all said that removing the data will have at most a minor
impact on lenders’ ability to predict risk.
all — 92% — of people who have liens or judgments in their credit reports
have other negative information in their files, says Ethan Dornhelm, FICO’s
vice president for scores and analytics. That’s why independent studies by FICO
and VantageScore Solutions found that scores went up an average of just 10
points when liens and judgments were removed.
much smaller group of people — about 1 million of the 200 million people with
FICO scores — whose credit reports are otherwise clean could see their scores
all players think the change is benign. A representative of LexisNexis Risk
Solutions says the outcome could be “catastrophic.” The company is marketing
reports with the deleted public records data to lenders.
data and analytics provider found that people with judgments and tax liens on
their credit reports are more than five times as likely to default on a
mortgage as people without those records, says Tim Coyle, senior director for
real estate and mortgage at LexisNexis Risk Solutions.
did FICO and VantageScore Solutions reach a different conclusion? LexisNexis
compared people with negative public records to those without. The credit
scoring companies used databases stripped of the questionable records, then
calculated scores based on the information that remained.
an open question how many of the affected folks will look more creditworthy
than they actually are and how many are actually good credit risks who were
victimized by erroneous data.
will find out by monitoring default rates and they will adjust their lending
criteria accordingly, says Jeff Richardson, a VantageScore Solutions spokesman.
That could mean raising cutoff limits for acceptable scores — which means in
turn that those who see their scores improve only modestly could find the loans
they want still out of reach.
ability to course correct varies. Credit card lenders, for example, can quickly
ratchet down credit limits, raise interest rates on new balances or accept
fewer applicants. Mortgage lenders, by contrast, make much larger loans that
can take months or years to start going bad in significant numbers.
it’s understandable that mortgage lenders may be a little twitchy about the
change — and why Fannie Mae sent a letter urging them not to be. The mortgage
buyer promised “lenders can continue to have full confidence” in its approval
decisions — but it also said it will continue to monitor the situation.
is what consumers should do as well. Knowing what your scores are, and taking
actions to keep them as high as possible, is an important part of managing your
finances skillfully in the 21st century.
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