Credit Impact – Why could your credit scores go up in the next few months?

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Stephen Lesavich, PhD, JD   @SLesavich

Do you have tax liens or civil legal judgments on your credit reports?  If so, you credit scores could go up in the next few months.

The three major credit reporting bureaus in the United States,  Equifax, Experian and TransUnion have recenty indicated they are going to remove tax liens and civil legal judgments from credit reports if they do not include certain required information, starting July 1, 2017.

Tax liens and civil legal judgments are to be removed from consumer credit reports in some instances starting July 1.

A tax lien is a lien imposed by law upon a property to secure the payment of taxes. A tax lien may be imposed for delinquent taxes owed on real-estate or personal property, or as a result of failure to pay income taxes or other taxes.

A civil legal judgement is a legal decision by a court or other tribunal that resolves a controversy and determines the rights and obligations of the parties.  Civil legal judgements on credit reports include litigation matters in which collection firms initiate litigation against borrowers over an unpaid debt.  However, civil legal judgements are not limited to debt collection actions.

Tax liens and judgments will only be removed from credit reports only if they don’t include a complete set of information comprising: (1) a name, (2) an address, and (3) either a date of birth or a social security number.

Most tax liens and civil legal judgements included on consumer credit reports do not include this new required information.

As I wrote about in a recent blog post, the average adult consumer in the U.S. has four credit scores, one from each of the credit reporting bureaus, Equifax, ExperianTransUnion and a FICO score.

FICO scores are used in the automobile, banking, credit card, mortgage, and retail industries.

About 90 percent of all lenders use FICO credit scores to determine creditworthiness.

Creditworthiness is how likely you are to repay any money lent to you.

Like it or not, decades of research have shown that a person’s creditworthiness can be used directly to predict risk in underwriting of both credit and insurance.

Your credit scores from the three credit reporting bureaus and your FICO score will vary by a number of points because the proprietary scoring models for each of these credit scores were developed separately and different factors are used to calculate the credit scores.

Many lenders argue that they may not be able to accurately assess a borrower’s creditworthiness if tax liens and civil legal judgements are removed from credit reports and argue that removing tax liens and civil legal judgements from credit reports will make all lending more risky.

These lenders also argue that lending costs may increase as they will have to complete additional research on potential borrowers in addition to reviewing their credit reports and credit scores to accurately determine lending risks.

However, many consumers have been denied loans or additional credit based on mistakes on their credit reports including false or inaccurate entries added by the unscuperlous debt collectors.

So how many consumer’s will benefit from this new practice?

It has been reported by the Washington Post that about eight to ten percent of all consumers have either a tax lien or civil legal judgement on their credit reports.

How will your credit scores change if tax liens and civil judgements are removed from your credit reports?

So if you have a tax lien or civil legal judgement on your credit report and it does not include the required information, your credit scores are likely to up by 20-40 points depending on your original credit scores and credit history.

Join the conversation on this topic by leaving me comment below or join me on @SLesavich with the hashtag, #creditimpact.

Stephen Lesavich, PhD — Co-author of the award-winning and best-selling book:  The Plastic Effect:  How Urban Legends Influence the Use and Misuse of Credit Cards.

Regular columnist: Positive Impact Magazine

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