The three credit bureaus, Equifax, Experian, and Transunion, will be making changes to two types of information currently reported on credit reports. These alterations could show credit score increases for an estimated 1 in 12 consumers.
Tax liens and civil judgments are the two pieces of information on the hotseat. The change is scheduled for July 1, 2017. It's estimated that up to half of civil judgment information and most of tax lien data will be removed.
2 New Requirements
Enhanced identification: The new standards will implement a series of 4 identification factors. Full name, complete address (house number, road, city, state, and zip), social security number, and date of birth will be the data points. If 3 out of 4 factors are included, the data will show up on a consumer's credit. It there are fewer than 3 data points, they will not be included in the credit report.
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Frequent validation: The new standard requires re-validataion of the debt every 90 days. If the court house does not give updates on the record every 90 days, it will not be included in the person's credit report.
Why is this happening?
Bureaus are striving to provide better, more accurate data quality. The Consumer Data Industry Association indicated the changes are part of the bureaus’ “National Consumer Assistance Plan” that follows a settlement in 2016 with 31 state attorneys general over alleged problems with credit reporting accuracy and correction of errors on credit reports.
VantageScore® Solutions has conducted a thorough “worst case” scenario analysis of the impact of removing tax liens and civil judgments from consumer credit files. They examined the impact on consumers’ credit scores broadly as well as on the ability for VantageScore 3.0 to continue to rank order effectively. For consumers, slightly over eight percent of the scoreable U.S. population received a change in score, with average credit score increases of 10 points. For VantageScore 3.0, predictive performance loss is minimal due to the fact that each scorecard within the algorithm incorporates a combination of derogatory behavioral attributes.
The credit report changes will apply to new and existing data in files and will require public records sources to include the individual’s name, address and Social Security number or date of birth. Most civil judgment data and up to half of tax lien information cannot currently meet these tests, according to one industry estimate.
What does this mean to us?
The concern to lenders is that tax liens and judgments are highly predictive of a consumer's bill paying performance. It's estimated that borrowers who have a judgment or a tax lien are 5½ times as likely to end up in serious default or foreclosure as are borrowers who don’t have such items in their files. No longer having access to these pieces of information will keep lenders from seeing the total picture of a potential borrower's financial history.
The good news is that these credit report changes will only affect around 8% of the population. That means that over 90% of the time, the credit report and score will show the same information as always, and be as predictive as it traditionally has been.
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