Recent changes to credit reports put together by Equifax, Experian and TransUnion can positively impact your score. Starting July 1, the big three credit bureaus are changing how they collect and update two sources of negative information from credit reports: civil judgments and tax liens.
What are civil judgments and tax liens?
Tax liens refer to any unpaid local, state or federal taxes. A lien is created for missed payments or payments not made in full, which gives the government a legal claim to your assets. Tax liens are usually for personal income tax but may also apply to government taxes such as property tax.
Meanwhile, civil judgments are for debt you owe the courts as a result of a lawsuit. If you're sued for money and you lose, the judgment against you may be included in your credit report.
Negative information such as judgments and tax liens can affect your credit worthiness in the eyes of lenders. If they spot these details on your credit report, they may decide not to grant you a loan.
What exactly is changing?
New standards of collecting and updating tax liens and civil judgments include:
- Additional personal identifying information: Records should have a 1) name, 2) address AND 3) social security number OR birth date. Records without these details will not be added or will be removed.
- More frequent updates: Credit bureaus should check for new and updated records at least every 90 days.
These changes will apply to all new and existing records.
"12 million people will see their credit scores improve."
According to a statement released by the Consumer Data Industry Association, the new standards "carefully balance the concerns of consumers and regulators about public record accuracy while at the same time ensuring that creditors can continue to rely on credit report data and credit scores derived from the data."
How will the changes affect my credit score?
Based on the analysis done by Fair Isaac Corporation, the company that developed the FICO credit score, around 12 million people will see their credit scores improve as a result of the new standards, as reported by the L.A. Times. A majority, or roughly 11 million, will see a score lift of up to 20 points, while an estimated 700,000 people will see a raise of 40 points or more.
This is good news for consumers. An increase in points could bump up your credit score to the next range, which can help you get a loan or improve the interest rates you get.