Some Credit Scores Will See An Increase Soon

Getting a loan from the bank can be difficult without a good credit score. A credit score is a numerical representation of how well you pay off your debts, so it is evident that a bank would think twice before letting someone with a bad score borrow money from them. Credit scores range from 300-850, and higher numbers are preferred. Luckily, as many as twelve million people will soon be getting a boost to their credit score.

Why will credit scores increase?

The boost in some credit scores will occur because the national credit reporting agencies will no longer include tax liens or civil judgments during their assessments. Their evaluation process is set to change due to the efforts of consumer advocates and government officials who are pushing the agencies to provide more accurate credit reports. Inaccurate credit reports are often filled with errors and outdated information that can limit a borrower’s access to loans and credit cards, or force them to pay higher borrowing costs.

Credit Agencies Limiting Information Collected

As of July 1, all three of the major credit reporting agencies (Equifax, Experian, and the TransUnion) will begin using stricter rules that will limit what type of information they can collect and use. The new regulations will require that every citation includes the person’s name, address, and their social security number or their birthday.

Most civil judgments and as many as half of the nation’s tax liens do not meet these new requirements, so they will be excluded from a credit report. The change will aid borrowers that have less than positive public records as well as thousands of individuals who have been battling to have inaccurate information removed from their credit reports.

It is speculated that as much as seven percent of all credit report holders in the United States will have either a civil judgment or a tax lien removed from their report. The men and women who have a judgment or tax lien removed from their credit report should expect a modest rise in their credit score. The rise will likely be around twenty points or less.

While any increase is appreciated, the men and women who will no longer be forced to suffer the frustrations of attempting to fix errors in their scores will be the biggest beneficiaries. It is not uncommon for false matches to occur due to their lack of identifying information. False matches are when the credit agency puts information into the wrong report. For instance, say two men in the same county go by John Smith. One John Smith may have a court record that shows a judgment against him, but the judgment may be placed into the other John Smiths report, hurting his credit score.

Credit Reports Updating More Frequently

Another modification the credit report agencies will be making soon is that their record will be updated every ninety days. Fighting to get false information out of a credit report is difficult, and before this new change, it may have taken a considerable period for the change to show up on a credit score. For instance, a credit report may find that you have a tax lien against you and they will add that to your report. Even if you pay off the tax lien and notify the credit agencies to get the lien taken off your credit report, it may take several months for the change to appear. Depending on your situation, the delay may make life considerably more challenging during that time.

Possible downsides to the change

These changes may have several positive benefits for everyday citizens, but they can also bring about adverse effects for banks and other lenders. The raising in credit score may make some borrowers appear more trustworthy than they are. After some testing done by two of the largest credit scoring agencies, it seems that removing tax liens and civil judgments from people’s report did not make any meaningful changes for most borrowers. The lack of change stems from the fact that ninety percent of people with tax liens or civil judgments also have other substantial credit problems, so the changes will likely not bring any individuals’ credit scores up far enough that lenders should worry.

New possible sources of credit report information

With the exclusion of tax liens and civil judgments, the agencies that the credit report companies previously got their information from may now attempt to fill the gap. Companies that once sold judgment and lien information may now begin trying to sell lenders the information directly. These companies have been selling the information for years, and are extremely accurate, making them a good source for lenders who are concerned about a potential borrower.

If you are concerned about how tax liens may impact your personal or business life, an experienced tax planning attorney in Atlanta can help you navigate these challenges.