Your credit score could jump in July, but it’s not a panacea

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Have you ever had a hard time trying to increase your credit score? Well, millions of consumers will have nothing else to do but wake up with a higher credit score in July.

There ! You just added 10, 20 or 40 points.

But wait before you get too excited and decide that now is the time to shop around for a mortgage or car loan. Instant Upgrade only applies to a select group of consumers, not the vast majority of us. And not everyone with bad grades will see their mistakes go away.

“The gut reaction is that it’s a good thing for consumers. It’s not necessarily true,” said John Ulzheimer, a credit expert who previously worked for the credit reporting firm FICO and the credit bureau. Equifax credit.

Starting in July, the three national credit bureaus – Equifax, Experian, and TransUnion – will no longer collect and post public records on credit reports on most civil judgments, such as money you owe due. a lawsuit and numerous unpaid tax liens at the state and federal government levels. .

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Foreclosures and bankruptcies are not part of the change.

During the week of July 10, credit bureaus will remove information that does not meet the new minimum standards for consumer identification.

About 12 million consumers nationwide will get an artificial increase in their FICO credit score. For most of those consumers, however, the score increase will be less than 20 points, according to FICO. This is because many of these consumers have other negative information, such as serious defaults or debt collections, on their records, and that information will remain.

The national average credit score reached 700 in April, indicating good credit and is 10 points higher than it was before the last recession, according to FICO.

According to a study by VantageScore, the majority of improvements related to reporting changes are likely to occur for high-risk consumers who score between 350 and 600 for credit scores. A small bump won’t necessarily get someone out of the subprime category.

Still, at the margin, it’s possible that a boost of up to 40 points could help some borrowers.

Credit reports and credit scores, of course, are used to determine the interest rate consumers receive on bad credit payday loans mortgages, and credit cards. The lower the credit score, the higher the interest rate.

Credit scores can also be a part of consumers’ financial lives when they rent an apartment, sign up for a cell phone plan, or try to sign up for utilities and even purchase insurance in many states. .

The good thing here is that some people have complained for years of having trouble removing inaccurate data from their credit reports. So now consumers might see fewer instances where someone else’s tax lien ends up on their credit report.

Some public records do not accurately reflect who owed the debt because the names of some files were mixed up and some Social Security numbers were omitted.

Consumer advocates have for years called for more measures to ensure the accuracy of what is listed on credit reports. In July 2012, for example, the Consumer Financial Protection Bureau held a town hall in Detroit to spotlight credit reporting agencies. A first agreement involving the reporting of changes was reached in 2015 by the three credit bureaus and 31 state attorneys general, including Michigan.

Medical debts less than six months old will not be reported as of September 1.

But as the buzz rises, it’s critical to understand that a few bad grades will stay on your report.

Ulzheimer said information relating to tax liens and civil judgments can remain on credit reports as long as the citation includes the person’s name, address, and date of birth or Social Security number. It is expected that around 40-50% of tax liens will remain on credit reports.

“Because civil judgments do not meet enhanced standards, they will be removed from consumer credit reports,” according to the Consumer Data Industry Association, a trade group representing credit reporting agencies. Some estimate that only about 4% of civil judgments could stay on reports.

How will you know if a tax lien or judgment has been removed from your credit report?

No one will send you a notice. You will need to check your credit report. See www.annualcreditreport.com. Or call 877-322-8228.

It continues to be important to dispute errors on your credit report. But if you actually had a tax lien that stays on a report, that’s not a mistake. See www.ftc.gov/credit.

You will not be able to file a complaint if a legitimate judgment or lien is listed. “This is not an amendment to the Fair Credit Reporting Act,” Ulzheimer said. “It’s just a voluntary action that the bureaus are taking.”

Consumers with complaints about credit reporting companies can file them with the Consumer Financial Protection Bureau at www.consumerfinance.gov/complaint.

Also, don’t think that borrowing will automatically become easier.

“It’s not like, it’s not on a credit report, so all of your problems are over,” Ulzheimer said. “Don’t fall into the trap of thinking that you don’t have to deal with your tax lien or judgment issues.”

Brian Riley, director of credit counseling for payments consultancy firm Mercator Advisory Group in Maynard, Mass., Said the industry expects mortgage lenders and others to do their due diligence on the job. future by turning to alternative methods of determining creditworthiness, including finding information elsewhere, such as in LexisNexis reports.

LexisNexis Risk Solutions announced in May that it has a new report that will address some of the latest challenges facing lenders, which could face a “blind spot” when certain data is removed from credit reports.

LexisNexis Risk Solutions has estimated that approximately 11% of US consumers have a tax lien or civil judgment on their record. On average, removing this data could add about 10 points to a credit score. But FICO estimated that up to 700,000 consumers could see their scores increase by at least 40 points after the change.

In general, a score of 760 or more is considered excellent, while a score between 720 and 759 is very good. Consumers in the 680-719 range are considered good and acceptable borrowers. Below 680, it is considered to be a variable level from low to subprime.

VantageScore 4.0 will be rolled out this fall in an attempt to fill in the gaps and provide predictive performance insights. The new scoring model takes into account the reporting limits of tax liens and judgments.

Bob Walters, president and chief operating officer of Detroit-based Quicken Loans, said Quicken had no plans to conduct further research, however. He said Fannie Mae and Freddie Mac – the two largest sources of mortgage finance in the country – have advised lenders that no further action should be taken in light of changes to credit reports.

Overall, the impact on credit scores will likely be minimal for most consumers, Walters said.

Yet Riley predicted that some mortgage lenders and the like will undoubtedly dig deeper for such and other credit-related information.

“It’s going to be there somewhere,” Riley said. “If that’s been tried, you probably have other issues as well.”

Contact Susan Tompor: [email protected] or 313-222-8876. Follow her on Twitter @Tompor.

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