New credit reporting changes went into effect on July 1st, which could mean that some consumers will see their credit scores increase. The three major credit reporting agencies, Equifax, Experian, and TransUnion, have all agreed to adhere to new credit reporting standards. These new standards will apply to public data that is reported to the agencies and will result in millions of consumers having their credit scores raised.
Tax Liens and Judgments
The new credit reporting standards will require that all public record data reported to the agencies must contain a consumer’s name, address, and Social Security number or date of birth in order to be reported on that person’s credit file. Information that doesn’t adhere to those standards will not be allowed on a person’s file. It is estimated that about 12-15 million people of the 220 million with credit scores will see tax liens or civil judgments removed from their credit files as a result of the new standards.
Most consumers are expected to see their credit scores increased by less than 20 points, however, as most consumers who have tax liens and civil judgments on their credit files also have other negative credit information. Still, this increase could be beneficial to millions of Americans. Going forward, the credit reporting agencies also have pledged to update public record information every 90 days. This too could help remove negative data from credit reports going forward.
The new standards also will prohibit the agencies from reporting medical debt on credit reports until 180 days have elapsed, in order to allow time for payment processing. Since medical debt can be a major factor in impacting people’s credit scores, this should also be beneficial for consumers. Giving them time to pay off medical debts or to get onto payment programs should ensure that a medical emergency won’t destroy someone’s credit and keep them from buying a house or a car.
The potential drawback to these new standards is that some of the people whose credit scores are raised may still be credit risks and their new scores might not adequately reflect that. If it allows people with subprime credit to purchase houses or cars and those loans eventually default, the results could be damaging to lenders. With the subprime crisis of 2008 still fresh in everyone’s minds, there should be at least a little wariness on the part of lenders to lend to subprime consumers.
If lenders loan money to too many people who really have no ability to repay, it could lead to a repeat of the fiasco we saw in 2008. On the other hand, if people who are otherwise good credit risks see their credit scores increase and are able to regain access to credit, that could be good for the economy.