An upcoming change to the way credit scores are calculated will likely benefit millions of consumers but also has others who depend on scores to calculate risk worried.
Starting July 1, 2017, the three primary credit bureaus will be implementing a new change in the type of information they collect to determine credit scores.
According to the Consumer Data Industry Association, (the industry group representing credit reporting bureaus), they plan to stop collecting and reporting most tax liens and civil judgments from people’s credit scores by roughly July 1.
This type of information has negative impacts on credit scores and previously remained in credit files for extended periods.
Tax liens are levied against properties when an owner is delinquent on payment of property taxes. Civil judgments are orders by courts in legal disputes, such as a creditor taking a borrower to court over an unpaid debt.
How does this impact consumers?
The plan to stop collecting and reporting civil judgments and tax lien information currently on public records will affect millions of consumers.
VantageScore Solutions, the credit scoring developer created by the three credit bureaus, estimated that 8 percent of consumers would see an average score increase of 10 points if all civil judgments and tax liens were removed from credit reports.
Ten points may seem small but in the mortgage industry that could affect a significant number of applicants.
This could result in as many as 12 million Americans appearing to be more creditworthy after the changes occur.
According to the Consumer Financial Protection Bureau, the largest single source of all overdue debt on credit reports is from unpaid medical expenses. Much of this debt is eventually paid late by insurance companies. The delays caused administrative and billing processes on the part of insurance companies often end up negatively impacting consumer credit scores.
Because of this change, consumers may save money in lower interest rates caused by insurance companies paying bills late.
How does this impact lenders?
It is feared by many within the industry that these changes may make risky buyers appear more creditworthy than they actually are.
The president and CEO of the Mortgage Bankers Association David H. Stevens has said that with tax lien and civil judgment information removed from credit reports, “it’s unclear whether creditors will be able to make informed decisions” about loan applicants.
According to Tim Coyle of LexisNexis Risk Solutions, an internal study by his firm showed that borrowers with a civil judgment or a tax lien are 5.5 times more likely to end up in serious default or foreclosure.
How these changes affect you depends on whether you work in the mortgage industry or on the content of your individual credit report. We will have to wait and see how lenders will adapt to the elimination of this information from the scores they use.
New credit policy: Good for consumers, worrisome for lenders – Chicago Tribune
3 Big Changes To Credit Scores That Will Impact Your Wallet – Forbes
CFPB Spotlights Concerns with Medical Debt Collection and Reporting – Consumer Financial Protection Bureau
This Regulatory Change Means a Credit Score Boost for 12 Million Americans – The Motley Fool
* Advertising Material: To the extent that the information in this post is interpreted as attorney advertising in accordance with the Illinois Rules of Professional Conduct or within the meaning of state bar rules from all other localities, this statement is made pursuant to those rules.
Specialties: Specialization claims are prohibited by Illinois Supreme Court Rules and we do not claim to be specialists. The content of this e-mail is organized and presented for the sole purpose of general information. None of the included content should be construed as legal advice. Viewing this e-mail or e-mailing the account holder does not create an attorney-client relationship. NOTICE: This page may be considered advertising material.
The Law Offices of Lora Fausett P.C. provides real estate law attorney services including buying & selling assistance, mortgage foreclosure defense, and short sales.