Credit Reports Soon Won’t Include Some Tax Lien, Civil Judgment Data

Image courtesy of (Chris Blakeley)

Millions of consumers could soon see their FICO credit scores increase as the three credit reporting agencies — Equifax, Experian, and TransUnion — take another step to overhaul their systems by excluding certain negative information related to tax liens and civil judgments from credit reports.

The Wall Street Journal reports that starting July 1 the CRAs will remove tax lien and civil judgment data from reports if the information does not provide complete details on consumers. For example, the marks will be removed if the data does not include a person’s name, address, Social Security number, or date of birth.

Additionally, if public court records aren’t checked for updates on lien and judgment information — such as cases where a debt collection firm has taken a consumer to court — at least every 90 days, they will have to be removed from credit reports.

The decision is estimated to improve the credit reports of roughly 12 million U.S. consumers, the WSJ reports, citing FICO data.  However, the resulting increases will likely be modest, with FICO projecting that around 11 million will see an increase of just 20 points. Another 700,000 people are expected to see a higher boost of more than 40 points.

Analysts warn that not providing the tax-lien and civil judgment information on reports could put lenders — and borrowers — at risk.

“It’s going to make someone who has poor credit look better than they should,” John Ulzheimer, a credit specialist and former manager at Experian and credit-score creator FICO, tells the WSJ. “Just because the lien or judgment information has been removed and someone’s score has improved doesn’t mean they’ll magically become a better credit risk.”

In fact, LexisNexis Risk Solutions has previously found that people with liens and judgments are twice as likely to default on loan payments.

The changes were made, in part, as a response to the pressure the CRAs have felt in recent years related to incorrect information appearing on consumers’ credit reports.

Each year, thousands of consumers file complaints against Equifax, Experian, and TransUnion. Most of these complaints are related to inaccurate information on a consumers’ credit report and the difficult time they often have in getting this misinformation corrected.

If the information continues to appear on the reports, it can affect a consumers’ ability to obtain credit, and prevent them from renting homes or receiving consideration for employment.

In recent years, lawmakers have attempted to overhaul the credit reporting system with legislation that would aim to change how long negative information remains on a consumers’ report.

While those attempts haven’t come to fruition, the CRAs have made changes of their own, the WSJ reports, with the companies removing some negative data sets from reports, such as non-loan related items that were sent to collections firms and collection information that has been paid by a patient’s insurance company from reports.