Updated Credit Reporting Policy Could Raise Some Credit Scores
Starting today, the three major credit reporting bureaus (Equifax, Experian, and TransUnion) are instituting a change that could lead to credit score improvements for some Americans. Just in time for tax day, this update will exclude all tax liens from credit reports. As USA Today reports, those affected by this change in policy could see their scores rise by as much as 30 points.
This latest development comes nine months after a similar change took effect, removing civil judgment data and around half of all of tax lien data. But, as of April 16th, the remaining tax lien data will stop being reported as well. However TransUnion notes that bankruptcy public record data will still be reported.
So how many people will be impacted by this update? According to LexisNexis Risk Solutions, that figure could be as high as 11% of the population. While LexisNexis also suspects scores could see a 30 point bump, Eric Ellman of the Consumer Data Industry Association expects less of a jump, saying “Analyses conducted by the credit reporting agencies and credit score developers FICO and VantageScore show only modest credit scoring impacts.”
One of the main reasons the updates were made last July and now this week was because of a study conducted by the Consumer Financial Protection Bureau. The CFPB says it had found problems with the way individual’s credit was being reported. Indeed credit score and credit reports play a major role in finances of many Americans, impacting their ability to buy a home, rent an apartment, or even get a job. As a result the bureau recommended certain changes take place.
Interestingly Nick Larson also of LexisNexis Risk Solutions argues that reforms to the credit reporting system could have unintended consequences. For example he says, if banks and lenders are unable to properly assess the creditworthiness of borrowers, they’ll be inclined to “hedge for that risk” and raise interest rates universally. As he concludes, “Overall, consumers actually get hurt.”
Despite Larson’s slippery slope warning, it’s clear that there are certain reforms to the credit reporting system that would be beneficial to borrowers — and some companies are already looking to scrap the traditional practice altogether. On top of the high-profile Equifax hack that has led many consumers to grow more critical of the credit system, recent years have also seen some FinTech lenders introducing their own algorithms for determining creditworthiness that don’t rely solely on credit scores. In any case, those affected by this tax lien policy update should be sure to check their credit and capitalize on their potentially-rising score by instituting some changes of their own.