Credit Reports are EXCLUDING Negative Information and Raising FICO Scores

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Updates to the types of information that the major credit reporting firms use in creating a credit score could soon improve the scores for millions of Americans. The three firms, Equifax, TransUnion, and Experian recently decided that they would no longer use certain negative reports in their credit scores. Specifically, Tax liens and Civil Judgments will be excluded from reports if certain information is unavailable to the firms. Here are 3 things you need to know about the new rules allowing credit reports to exclude negative information and boosting FICO scores, and how they might affect you.

 

  1. This will only apply if the information that the firm has about the tax lien or civil judgment is missing some information. If the report includes full name, address, date of birth, and SSN, then the information will stay. However, frequently reports are made without this information. It is projected that over 10 million people will see moderate improvements to their credit score, and over half a million could see substantial gains of 40 points or more.
  2. The boost could make a definite difference in loan approvals. A 40 point gain could easily mean the difference between approval and denial for a loan. And while this is great news for consumers with shaky credit, lenders might be wary. Those with tax liens and civil judgments against them have been estimated to be twice as likely as those without to default on loans.
  3. The new rule will go in effect July 1, so if you know that you have these on your record, check your credit after this time. If you see a substantial improvement, don’t sleep on it. Use your improved credit to increase your financial stability. That said, If you are a lender, you might need to remember the adjustments, and keep them in mind when assessing credit worthiness. You now have less information to work with.

The impact of this change will obviously not be seen until the rule is put into effect and credit scores begin to change, but there are some things that we should keep in mind. First, public information can still be used to determine if, for example, someone has a civil judgement against them. The change in rules will boost their credit score, but lenders could still look this information up. Second, this will hopefully decrease the number of people with incorrect information on their credit reports. Removing items this way shows that the CRAs are paying attention to a current problem:the number of complaints that they receive about incorrect credit report info.