Not Just The Times—But The Credit Reports—Keep A-Changing

Changing Credit Reports | SettlementOne

In a year in which it often feels as though the only ‘constant’ is change, you can add millions of the nation’s credit reports to the list of items undergoing transformation in 2017.

While the majority of Americans won’t be affected by these changes, it has been estimated by FICO that between 6-7% of individuals with current credit scores will see their credit reports altered as a result of the removal of tax liens and civil judgments from their reports.

To recap this change, it was previously revealed that as of July, the nation’s ‘Big Three’ credit reporting agencies—TransUnion, Experian and Equifax—will remove any reference to tax liens or civil judgments that are deemed “incomplete”; under the new rules for credit reports, a complete tax lien or civil judgment would have to include a name, address, and either date of birth or Social Security number.

The end result will likely be an increase—of varying size—to the credit score of between 12-15 million people; industry experts estimate that for most of those affected by the increase, the credit score hike is expected to be in the range of 20 points.

Some experts have raised concerns about the unwanted effects these changes to millions of credit reports could mean for not only consumers, but for the nation’s lending community.

Tax lien information, as well as civil judgments, are often used to assess credit worthiness of consumers who have a limited credit history. The Consumer Data Industry Association estimates that a majority of civil judgments—and approximately half of tax lien data—could not meet the personally identifiable information requirements. Some lenders worry that if sufficient information on consumers is not made available, it could negatively affect the lending community’s willingness to offer loans to sub-prime borrowers or consumers with limited credit history.

In the wake of the changes to credit reports, some industries also may be more affected than others.

For example, automobile dealers rely heavily on credit reports and consumers’ credit scores in determining who does—or does not—qualify for an auto loan. Still, a recent study by ID Analytics found that 60 percent of auto loan applicants could be considered eligible for a loan using “alternative data”, information other than civil judgments or liens. For example, the study suggested that examining payments of consumers’ wireless phone bills, or their checking accounts, could help indicate the credit worthiness of potential borrowers.

In the case of a consumer’s checking account, for example, lenders could examine the account balance, as well as how often a consumer ‘overdrafts’ the account. The ability to meet payments of bills—as well as maintain a reasonable level of account balance—could serve as ‘real world’ substitutes for information such as tax liens or civil judgments, the survey found.

Meanwhile, this year of constant change will continue into the fall.

Commencing September 15, all three major credit reporting agencies also plan to set a 180-day waiting period before they include medical debt on consumers’ credit reports. The change is being made with the hope that a six-month waiting period will help ensure that there is enough time to resolve disputes with insurers, as well as delays in payment.

Additionally, the credit bureaus will also remove medical debt from consumer’s credit reports once an insurer has paid it.  Initially spurring the changes was a 2015 legal settlement negotiated by New York State Attorney General Eric Schneiderman and all three credit reporting agencies; additionally, a prior agreement regarding medical debt inclusion on credit reports–between the agencies and attorneys general in 31 states–also helped instigate the forthcoming medical debt reporting changes.

According to a 2014 report by the federal Consumer Financial Protection Bureau (CFPB), medical debt is a substantial issue facing millions of Americans; it’s estimated that 43 million Americans have medical debt that negatively impacts their credit. In addition, the study found that for about 15 million Americans, medical debt is the only item negatively impacting their credit report.

As these credit reporting changes begin to be implemented and work their way through the US economy, uncertainty as to their longer term effects remains; at least for now, the only ‘certainty’ regarding American credit reports continues to be that many are bound to ‘change’ during this calendar year.

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