Off the Record: Consumers Will See Less of Derogatory Marks on Credit Reports

Off the Record- Consumers Will See Less of Derogatory Marks on Credit Reports

Credit Scores Could Receive a Boost as a Result

Equifax, Experian, and TransUnion will not include derogatory marks, civil judgments and tax liens on credit reports if they don’t meet new reporting standards. While the credit bureaus deemed the move to result in modest impacts to credit scores, FICO scores of about 12 million consumers could increase between 20 and 40 points.

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New Public Record Reporting Standards

According to Consumer Data Industry Association President & CEO Eric J. Ellman in a public statement, the three credit reporting agencies have strived to maintain consumer credit files that are accurate and current. To this end, they agreed on new standards for collecting and reporting civil judgments and federal and state tax liens, namely:

  1. The public record should contain the consumer’s personal identifying information, at the minimum: name, address, and SSN and/or birthdate.
  2. Courthouse visits to obtain newly filed and updated public records of every 90 days at the very minimum.

These enhanced standards will apply to new and existing public record data starting July 1. “We believe the enhanced standards for public records carefully balance the concerns of consumers and regulators about public record accuracy while at the same time ensuring that creditors can continue to rely on credit report data and the credit scores derived from that data,” said Mr. Ellman of CDIA which is a trade group representing the three credit bureaus.

Relief From Derogatory Marks

The implementation of those standards will affect consumer reporting databases, which according to Mr. Ellman, contain:

  1. Civil judgments whose vast majority may not meet the above personal identifying information requirements.
  2. Tax liens whose half of the data may not meet the PII requirements.

Indeed, public records like tax liens and civil judgments are long considered derogatory marks on credit reports, having one spells an immediate drop in your credit score. They reflect your past inability to meet your contractual and tax obligations and would make things difficult when you apply for a mortgage, for example.

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Civil judgments arise from civil cases seeking to recover monetary damages arising from breach of contract, family disputes such as child support and alimony, etc. While civil judgments per se are not directly reported to credit bureaus, they have access to court documents that are publicly available and may include them on credit reports.

The civil judgment entered by the court, whether it is fulfilled or not, would remain on the credit report seven years from its filing date. An unpaid civil judgment looks to the lender as an obligation that will preclude you from repaying your other debts.

Tax liens arise from unpaid tax bills owed to the federal and state or local government. If there is an existing tax lien, it means that the applicable governmental entity has an interest in the property as evidenced by notices of tax liens filed by the IRS for the federal government or the local government units where the owner lives.

Like civil judgments, tax liens remain on credit reports for seven years. Fully paid tax debts can still be on your credit report seven years from the date of payment. If your notice of lien has been withdrawn, you may ask for its removal.

There have been concerns over the removal of these public records from credit reports, which could preclude lenders from making an informed lending decision. It remains to be seen how lenders would react to these new measures in the coming days.

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Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.

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