Starting July 1, the three major credit reporting companies will start excluding many civil judgments and tax liens from consumers’ files, which means some credit scores will move higher, possibly by as much as 50 points.
A little-known policy change could make the difference for consumers seeking mortgage approvals, car loans or credit cards.
A tax lien is a legal claim the government has over your assets if you fail to pay your taxes. Civil judgments are similar, but they’re payments ordered by judges as part of settlements.
Both of these actions, of course, negatively affect people’s credit scores. However, beginning today, July 1, Equifax, Experian and Transunion will wipe out about half of tax liens and most civil judgments from consumers’ credit files.
About 7 percent of the 220 million Americans with credit reports will have a judgment or lien stripped from their file, says an analysis by Fair Isaac, the company that provides the scoring formula most used by lenders to determine a consumer’s credit worthiness.
This action by the credit bureaus stems from legal actions taken by U.S. Consumer Financial Protection Bureau’s and attorneys general in 31 states to make credit reports more accurate and fair.
As of July, tax liens and civil debts will be excluded from credit files if they do not include sufficient personal identifying information: name, address, and either social security number or date of birth. The bureaus also have to be willing to re-verify the data every six months under the new agreement.
Most civil judgments, and an estimated half of the nation’s tax lien records, do not meet these new standards, requiring the credit bureaus to eliminate the data from consumer files.
The change will be a big benefit for thousands of people who have tried unsuccessfully to remove incorrect information from their files.
To view your free credit report, download it at AnnualCreditReport.com