Time to buy a car? Nail-biting over whether your score will be high enough to get a good interest rate.
New job requires a credit check? Nail-biting over whether that bad day in small claims court will stop you from getting hired.
But those big, mysterious credit bureaus are about to make a change that takes away a bit of the mystery.
And your credit score could benefit.
How to See if the Coming Changes Will Boost Your Credit Score (For Free)
First things first: You’ll want to grab the most recent version of your credit report.
The credit bureaus are actually required to give you a free report each year.
Already used up your freebies? This TransUnion portal lets you score a new credit report every month so you can monitor these upcoming changes.
Once you have your credit report, you’ll be able to see your current score, your lines of credit and any negative marks against your score.
Credit Scores Changed Dramatically in 2016
It’s been a big year for credit score changes.
We recently saw:
- Medical debt dropped from credit reporting until after a 180-day window to allow insurance companies to pay up, according to the National Consumer Assistance Plan Fines like parking tickets and overdue library books no longer appear on credit reports, either.
- Lenders started using more trended data. So instead of just determining whether a borrower qualifies for a loan based on whether they were on time with credit payments, lenders take a 24-month look at payment history to also see how a borrower paid (whether it was more than the minimum each month, etc.). This strategy has made it easier for African American and Latino families to get mortgages, according to Pew Research.
- A sharp increase in identity theft. The Federal Trade Commission (FTC) reported 490,220 identity theft complaints in 2015, up almost 160,000 complaints from 2014
All right, grab your your credit report and let’s dive into this year’s changes.
And Even Bigger Changes Are in Store for 2017
Starting July 1, Experian, TransUnion and Equifax will make a change to the way they report credit scores.
If your credit report currently lists a tax lien or civil judgment, your score could get a boost.
A tax lien is what the government sets up if you have unpaid tax debt. This step takes place before the government levies (or takes control of) your property to cover the unpaid debt.
Once you pay a tax lien in full, it gets released within 30 days.
A civil judgment is a non-criminal court case you lost. Sometimes wage garnishment is used to obtain regular payments toward a civil judgment.
These issues aren’t directly reported to the credit bureaus. Instead, they’re public records anyone can access.
As of this summer, the bureaus will only list these items on your report if three of the following four pieces of data are present: name, address, Social Security number and/or date of birth.
“Many liens and most judgements don’t include all three or four,” Annamaria Andriotis reports in the Wall Street Journal.
In addition, the credit bureaus will update public records they collect at least every 90 days.
“We believe the enhanced standards for public records carefully balance the concerns of consumers and regulators about public accuracy while at the same time ensuring that creditors can continue to rely on credit report data and credit scores derived from the data,” said Eric Ellman, interim president and CEO of the Consumer Data Industry Association (CDIA), in a March 13 statement.
The Fair Isaac Corporation, which administers FICO credit scores, said about 12 million people will see their scores go up once the bureaus implement this reporting change.
For most, the credit score increase will be “modest,” probably fewer than 20 points. But about 700,000 consumers could see an increase of about 40 points.
Why will only a small group of credit score holders see a marked increase?
“An overwhelming majority of consumers who will be impacted by the [credit reporting agencies’] updated policy still have other derogatory indicators such as collections or serious delinquencies on their credit file, which will remain post-removal of this public record information,” a FICO representative explained.
Good News for Everyone! Right? (Maybe Not for Lenders)
Leaving tax liens and judgments off credit reports is exciting for affected consumers — but not so thrilling for people who pull credit reports to make decisions about your financial health.
Washington Post columnist Kenneth Harney asked Mortgage Bankers Association President and CEO David H. Stevens how the reporting change will affect the mortgage industry.
“Stevens said that blocking this information will raise some applicants’ credit scores artificially, creating ‘false positives’ that make individuals appear lower risk than they are,” Harney noted.
Even an increase of a few points, he explained, could have a major impact on a consumer’s creditworthiness.
Thanks for the Higher Score!
“There’s nothing, absolutely nothing, in the Fair Credit Reporting Act that requires the removal of liens and judgments,” John Ulzheimer of The Simple Dollar wrote. “And there’s nothing in the settlement language between the credit bureaus and all of those attorneys general that obligates them to remove liens or judgments. This is a choice the credit bureaus made on their own, and it’s pretty good news for consumers.”
Will these changes affect your score? The best way to find out is to keep an eye on your credit report.
Your Turn: Do you expect your credit score to improve after most tax liens and civil judgments are removed from credit reports?
Disclosure: This post includes affiliate links. We’re letting you know because it’s what Honest Abe would do. After all, he is on our favorite coin.
Lisa Rowan is a writer and producer at The Penny Hoarder.