28
Apr

credit repair

As a result of litigation encountered by the three bureaus, Experian, Equifax, and Transunion have all announced they will be removing tax liens and civil judgments from credit reports where incomplete information exists, according to the Consumer Data Industry, a trade group that represents them.

The Consumer Financial Protection Bureau issued a report in March 2017 citing problems with credit report accuracy, specifically the quality of the credit information contained in the 3 bureaus’ credit data. Issues included improving standards for public-records data, notably, making sure they used basic identifying information: a person’s name, address, social security number, and date of birth.

Many liens and most judgments don’t include even three of the four pieces of identifying information, and in light of recent litigation, the credit bureaus want to avoid more court appearances. In 2015, the credit bureaus reached a settlement with the New York attorney general over the practice of disputing errors on consumers’ credit reports. The firms agreed to change the way they investigate disputes. This settlement was followed by a 6 million dollar, 31-state agreement to change the way the credit reporting agencies handle data and investigate disputes, among other practices. The multi-state settlement led to an agreement from the bureaus to remove non-loan related collection items such as gym memberships, library fines, and traffic tickets.

The credit reporting agencies agreed to remove new or existing tax liens and judgments that don’t contain at least 3 out of the 4 pieces of identifying information.

The changes could lead to a greater default risk for lenders as credit scores could rise dramatically (40 points) for some 700,000 borrowers, according to FICO, meaning more people would possibly be approved for loans who previously would have been denied. Tim Coyle, senior director of real estate and mortgage for LexisNexis Risk Solutions, a source of public records information for the 3 credit bureaus, told the Washington Post that borrowers with a tax lien or judgment are 5 1/2 times more likely to wind up in defaults or foreclosure as borrowers who don’t have such information in their credit files.

FICO also predicts that 11 million people will have their credit scores boosted by 20 points or less because of the new changes. The FICO score ranges from 300 to 850. Ankush Tewari, senior director of credit-risk assessment at LexisNexus Risk Solutions told the Wall Street Journal that nearly all judgments and about half the tax liens would be removed from credit reports.

Criminal judgments do not appear on credit reports, but civil judgments include cases where a collection firm, credit card company or lender take a consumer to court over unpaid debts. These types of judgments appear on credit reports. Tax liens occur when a consumer owes a state or the federal judgment money on unpaid taxes. Federal tax liens are typically placed when a consumer owes more than $10,000.

If judgments are not going to appear on credit reports, creditors are not going to be able to use that as ammunition for getting paid and will rely instead on wage garnishment or seizing funds in checking or savings accounts.   Wage garnishment occurs when a creditor wins a civil judgment against you and gets a court order to receive money from your paycheck. The creditor presents the court order to a consumer’s employer and depending on the laws of the state, a portion of wages is deducted (a few states prohibit garnishment, others limit what amounts can be garnished). Creditors can use the same court order to go to your bank and get approval to withdraw funds from your bank account.

When dealing with a tax lien, a consumer is going up against the government who has the power to deduct wages from your paycheck without a court order.   There is no limit to what the government may take, only what it must leave. For instance, a married person filing jointly with 2 deductions making $5000/month would only be allowed to keep $1625 of his or her check.

If you are among those who will have a lien or judgment removed from your credit report as a result in this change in policy, you may welcome the boost to your credit scores, but lenders are looking at the removal of this information warily and may seek on this information on their own. There is nothing in the law that prevents a lender from checking to see whether a potential borrower has a tax lien or a judgment, and denying credit to those who are found to have one.

While 40 points sounds like and is in actuality a big boost, even a small credit score improvement of a few points may mean the different between approval and denial of credit. And for those who are not denied, a difference of a few points may mean a significant increase in interest rates on a mortgage or car loan. Most lenders look only at the credit score, not a person’s 3 bureau credit. A good credit score range is defined differently depending on the lender and the loan product, but most lenders treat anything above a 720 as a good credit score. Both FNMA and FHLMC, a.k.a. Fannie Mae and Freddie Mac, list the minimum credit scores for which they will accept borrowers.

Getting a credit card with bad credit can be a frustrating process, so even a small improvement can be a welcome one. Here is a published list of minimum credit scores that you will need to get a credit card. As shown in the list, even a one-point difference can get you denied for certain kinds of credit cards.

If your credit score did not get a big enough boost from the new changes in policy, now could be the time to sign up for professional credit repair. You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.