The three big credit reporting companies- TransUnion, Equifax, and Experian- will put in place stricter rules which will have the effect of improving the credit scores of approximately 12 million individuals. The national reporting agencies for credit will erase from records to major points of negative information concerning borrowers: civil judgments and tax liens.
Benefits and concerns
The change will not only benefit the borrowers with public records in negative territory, but also assist the thousands of individuals who have helplessly fought to have wrong information erased from their personal files. According to Fair Isaac, about seven percent of 220 million US users with credit reports will have the lien or judgment taken away from their file. Fair Isaac is the company supplying the formula which generates the FICO credit scores.
The three credit reporting concerns will impose tougher practices on collected public records like each citation must include the name and address of their subject. The companies are allowed to extract only an individual's birth date or the Social Security Number. Almost 50 percent of the civil judgments and the tax lien records fall short of such new standards. Under new rules, these data will be brushed off from the consumer credit reports.
Struggle to end errors
These actions were the end result of a long struggle by government officials and consumer advocates to compel credit bureaus improve their report accuracy. The latter is often found to be peppered with errors. Outdated information also gets in the way. Such mistakes could restrict credit card access to borrowers. Mortgages and auto loans will also be negatively affected. Higher borrowing costs add to the pain.
The action to get such wrongs corrected began in 2015. A coalition consisting of about 31 state attorney generals whipped the credit bureaus. A deal was hence negotiated which forced radical changes on the latter's practices. It is fair to say that the credit bureaus had already made a few adjustments. They have removed court fines and traffic tickets from files. The changes to be had from July will have the maximum effect yet.
According to an analysis by Fair Isaac, people saddled with negative credit report will enjoy a slight lift of their scores. A typical increase will be to the tune of about 20 points max. The biggest beneficiaries will be the people whose scores were down due to errors. False matches are quite common.