Changes are coming to your credit report – and this time, those changes may work in your favor. Thanks to some background work by the three major credit bureaus (Experian, Equifax, and TransUnion), public records to be included in credit reports must meet higher standards. That action should result in a boost in credit scores for some consumers.
In 2015, the credit bureaus announced the National Consumer Assistance Plan (NCAP) to improve the accuracy of consumer information and provide greater transparency to consumers. The standards resulting from that plan are expected to take effect on July 1, 2017.
To be reported on a credit report after that date, the minimum personal identifying information (PII) has been raised to include name, address, Social Security Number, and date of birth. In addition, the minimum frequency of visits to courthouses to obtain updated records was established at ninety days.
Since these standards apply to existing public records, it’s expected that many public records related to civil judgments and tax liens will not meet the new criteria and be dropped from consumers’ existing credit reports – providing an immediate boost to credit scores. Bankruptcies, which are typically more detailed and in-depth with respect to records, will probably not be affected.
If that news weren’t good enough, at least one debt collector is rewarding good-faith efforts to repay. Encore Capital Group has promised not to report any new collection account to the credit bureaus as long as the debtor begins repaying their debt within ninety days after being notified of the debt in collections.
Why are the credit bureaus and debt collectors taking this step? It’s good for all in the long run. The modified credit score should allow the bureaus to assess credit risk more accurately, opening up access to credit to a greater number of reliable borrowers. In Encore Capital’s case, debtors who make efforts to repay old debts will be rewarded for their efforts, as credit companies consider them lower risk than those who don’t. Credit scores don’t currently reflect that positive effort.
Similarly, civil judgments are not as well correlated to risk because of poor verification and updating methods, difficulty in correcting errors, and the number of default judgments against people who don’t even realize that they are being sued (sometimes inaccurately). Experian estimates that a whopping 96% of civil judgments will not meet the new criteria and thus will be removed from tax records.
How much will credit scores be affected by this action? Fair Isaac Corporation (the creators of FICO scores) estimated that around 6% to 7% of consumers would have adjustments made to their credit reports, resulting in a median rise of 10 points in credit score. VantageScore found that approximately 8% of consumers would be affected, with an average credit score increase of 11 points. When you are on the credit borderline, 10 or 11 points can be the difference between rejection and approval, or a lower interest rate offer compared to a higher one.
Whether or not you have a black mark against your credit report that falls in this category, it is important for you to check with the credit bureaus to make sure that positive action has been taken and that there are no other errors on your report. If you believe there is a mistake on your credit report. Remember the advice of Greg McBride, Chief Financial Analyst at Bankrate.com, with respect to paid-off debt: “You want to make sure it gets noted as ‘paid in full’.”
The credit bureau actions may be one of those rare cases where you actually receive benefits for doing nothing. If you are a beneficiary of that effort after July, enjoy your good fortune. “Something for nothing” does not happen very often.