Consumer credit scores to exclude some debts, liens starting July 1
Here's potentially good news for consumers: The nation's three largest credit-reporting agencies will soon exclude tax liens and some civil debts from their reports.
The change by Equifax, Experian and TransUnion will take effect July 1, as part of a plan to ensure that consumer identifications in the data are accurate and current, the Consumer Data Industry Association, a trade association for the companies, said Monday.
In a revision that could improve consumers' credit scores, the credit agencies will exclude the tax liens and civil debts if reports on those obligations don't include a consumers' names and addresses, as well as Social Security numbers and or dates of birth, the CDIA said. Many liens and most judgments don't include all of that data, in part because Social Security numbers are often redacted for security reasons.
Additionally, the records won't be included without courthouse visits to obtain newly filed and updated public records at least every 90 days.
"Equifax, Experian and TransUnion continually seek ways to ensure the data they maintain on their consumer credit files is accurate and current, to best serve consumers and the needs of their business and government customers," CDIA Interim President and CEO Eric Ellman said in a statement. He added the change was part of the National Consumer Assistance Plan the credit reporting firms announced last year.
However, the changes also likely result from new oversight of the credit-reporting agencies by the Consumer Financial Protection Bureau, as well as enforcement settlements by more than 30 state attorneys general, said Chi Chi Wu, a staff attorney for the National Consumer Law Center. Those actions focused on credit-reporting errors that harm consumers.
"It's a good thing. Anytime consumers are not being harmed by incorrect data is a positive," said Wu.
Although the changes could help consumers appear more credit-worthy, the updated policies potentially could make loan-screening more difficult for lenders. Nessa Feddis, senior vice president for consumer protection and payments at the American Bankers Association, said the change could mean less precise lending data for bankers, as well as potential problems for all consumers.
"The bottom line is this is not consumer-friendly," said Feddis. "People will get loans even though they may not have the ability to repay them."
As a result, credit could become tighter, or more expensive, and the cost would be borne by all consumers, she said.
Wielding important influence on borrowing and lending, the credit-reporting agencies track consumers' credit and banking histories and other financial transactions. The resulting reports, based on information from banks and non-banks, help determine both consumer eligibility for loans and the rates borrowers are charged.
However, consumers frequently complain that the credit-reporting agencies are marred by inaccuracies.
The Consumer Financial Protection Bureau said the federal regulator had received roughly 190,600 credit-reporting between Oct. 2012 and the end of February. A CFPB report issued early this month said many consumers complain that nothing changes when they dispute items in their credit reports, even though federal law requires the credit-reporting companies to conduct a reasonable reinvestigation and update the data to show necessary changes or delete the item.
Consumers also complain that debts they've paid appear on their credit reports as unpaid, the report said.
In 2013, the CFPB warned it would hold loan furnishers accountable for their legal obligation to investigate the accuracy of consumer complaints and documents forwarded by the credit-reporting agencies.