The three major credit reporting agencies have
announced a significant change in their credit reporting metrics that could
both boost credit scores for millions of consumers and cause potential problems
The Consumer Data Industry Association, a trade group
representing credit reporting companies said late Monday that the three major
companies that provide credit data, Equifax, Experian, and TransUnion, will
soon remove tax lien and civil judgment data from some consumer credit records. The removal will impact most such existing
data and, going forward, the way new data must be reported from the source.
Starting July 1, public records data must include
three of four data points, the consumer's name, address, and either a social
security number or a date of birth.
Existing records that do not meet this criterion will be purged from the
consumer record and new data that does not include these points will not be
added. Many liens and most judgments
don't include all three or four pieces of information.
This change will not only eliminate negative information
from the record but should ultimately have the effect of raising many credit
scores. Both the reports and scores are
instrumental in lender decisions about whether or how much consumers can borrow
for auto, home, and other major purchases as well as the interest rate they
FICO, which provides credit scoring, estimates that there
will be an improvement to about 12 million consumer scores, about 6 percent of
those consumers with such scores. For
most the boost to their scores will be modest, probably less than 20 points.
It appears that the changes announced by the credit
reporting companies are at least partially in response to a recent report from
the Consumer Financial Protection Bureau (CFPB). CFPB is the first government agency to oversee
credit reporting and has been critical in the past of many of the firms' quality
control functions as well as their manner and efficiency in addressing consumer
complaints and errors in credit records.
A report issued earlier this month found substantial improvement over
the past several years but also noted a need for additional development and
formalization of corrective actions on the part of some. Specifically noted was the need for improving
standards for public record data. In a
separate monthly report, CFPB also noted that credit reporting continues to account
for the largest share of consumer complaints the agency receives.
The Wall Street Journal
reports that settlements of lawsuits brought by various states have already
pushed the credit reporting companies to remove some categories of negative
data from reports such as information related to library fines and gym memberships,
and required changes to the timing of medical collections information.
There are fears that the change in reporting negative public
records information could pose potential risks for lenders as they try to accurately
predict borrowers' creditworthiness. The
Journal quotes information from LexisNexis
Risk Solutions, which supplies such information to the credit bureaus and to
lenders. They maintain that consumers
with liens or judgments are twice as likely as others to default on loan
The paper also quotes John Ulzheimer, a credit specialist and
former manager at Experian and credit-score creator FICO who says, "It's going
to make someone who has poor credit look better than they should," said "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