For many Americans, their credit reports are not unlike their insurance policies—they don’t give them much thought, until the day arrives when the quality of their credit report directly affects them.
Still, whether or not it is given much thought, an individual’s credit history is often of enormous importance—and a significant determinant as to whether someone is granted a loan, or even considered to be ‘reliable’ as a potential employee.
That’s why forthcoming changes to the calculations used to determine every American’s credit history has the potential to be one of the most significant financial events of this calendar year.
Commencing July 1st, all three of the nation’s major credit agencies—Equifax, Experian and TransUnion—will no longer be including, or considering, an array of negative financial factors when calculating an individual credit report; most tax liens and civil judgments (such as a court suit over an unpaid debt) are among the events that are slated to be removed from Americans’ credit histories.
Some industry observers estimate that up to half of civil judgment information—along with the majority of tax lien data—will be removed from credit reports as a result of this forthcoming change.
Under the new criteria, in order for a civil judgment or tax lien to remain on a credit report, the event would have to include three data points: an individual’s name, address, and either their Social cialis pas cher Security number or date of birth. Experts say that it’s unusual for either liens or judgments to contain all those data points; as a result, some are predicting that as many as 12 million Americans will have negative events removed from their credit histories.
Existing consumer credit records that don’t meet the new criterion will be purged from consumers’ records; going forward, new data that does not meet the new standards will also not be added to an existing credit record.
Normally, an administrative change to existing consumer records might not make for exciting headlines or generate much interest. However, the forthcoming change to millions of Americans’ credit reports is the exception to the rule—if only because of how many average Americans are expected to be affected by the change.
FICO, the company that utilizes information provided by credit agencies Experian, Equifax and TransUnion, has estimated that a full 6 percent of all American consumers will likely see an improvement to their credit scores as a result of this rule change—although the increase in most scores is expected to be less than 20 points.
The push to improve the quality of credit scores—and the information used to calculate them—has grown in recent years, spurred on by both the creation of the Consumer Financial Protection Bureau (CFPB) as well as multiple state-sponsored lawsuits against the credit reporting agencies. Critics have long argued that including minor financial ‘events’—such as overdue library fines or other minor financial offenses—in calculating credit histories has caused undue harm to the available credit for many Americans.
However, some in the lending industry worry that loosening the standards for credit reports could affect lenders’ ability to accurately discern an individual’s credit worthiness; spurring that concern is data that indicates that individuals who have had liens or judgments against them are up to twice as likely to default on future loans.
Of course, with a new Administration now ensconced in Washington, until the new rules actually come to fruition on July 1st, there remains the possibility of additional ‘tweaks’ to the forthcoming credit reporting changes.
However, barring any last minute alterations to the new credit reporting guidelines, millions of Americans will wake up on the first day of July with a ‘new and improved’ credit history–the ramifications of which will be likely be felt far and wide.