Major Credit Bureaus to Delete Most Tax Liens and Judgments from Consumers' Credit Reports
The bureaus have developed new standards for collecting and updating their data
Do you have a civil judgment or tax lien on your credit reports? If so, there's good news for you: the major credit bureaus are going to delete most of these from consumers' credit reports in July.
The Consumer Data Industry Association (CDIA)—the trade association of bureaus Experian, TransUnion, and Equifax—announced that they have developed new standards "for the collection and timely updating of civil judgments and tax liens" that "will apply to new and existing public record data on their respective credit reporting databases."
In other words, most of the tax lien and civil judgments listed on your credit reports right now will not meet these new standards and therefore will be taken off the reports.
This is big news in the credit industry, says The Simple Dollar(TSD).
"There's nothing, absolutely nothing, in the Fair Credit Reporting Act that requires the removal of liens and judgments," it writes. "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."
Most of the time, judgments can stay on consumers' credit reports for seven years from the date it was filed. In contrast, unpaid tax liens never have to be taken off, and tax liens that have been paid and released can still stay listed on credit reports for seven more years.
When the credit bureaus take this action, therefore, some of the negative information that has stubbornly stayed on your reports through the years will be removed.
However, the consequences of this decision may not all be positive. Lenders that use credit scores and reports will pause when deciding whether or not to extend credit to someone with such negative items in their past, which they will still be able to see in the public records.
Mortgage Bankers Association President and Chief Executive David H. Stevens commented to The Washington Post (TWP) that "it's unclear whether creditors will be able to make informed decisions" regarding loan applications for such consumers. He is concerned that "blocking this information will raise some applicants' credit scores artificially, creating 'false positives' that make individuals appear lower risk than they are."
After all, writes TSD, people who have experienced liens and judgments "are riskier than people without those items," whether they are listed on their credit reports or not.
An internal study conducted by LexisNexis Risk Solutions, a data and technology company that sells information on public records—information including judgments and tax liens—to creditors, made alarming findings. Tim Coyle, the company's senior director of real estate and mortgage, told TWP that the study discovered that "borrowers who have a judgment or a tax lien are 5.5 times as likely to end up in serious default or foreclosure as are borrowers who don't have such items in their files."
So the next time you apply for a loan, remember that creditors can still find out about civil judgments and tax liens, even if they're not listed on your credit reports.