Consumers saddled with unpaid taxes, doctor bills and judgments will soon be protected from credit score damage.
Key pieces of the three major credit bureaus’ joint National Consumer Assistance Plan are set to take hold this year, including those that affect the reporting of tax liens, civil judgments, medical debts and authorized user accounts. The plan stems from a 2015 settlement between the three major credit bureaus — Equifax, Experian and TransUnion — and 31 state attorneys general designed to improve credit reporting accuracy and provide consumers with more transparency.
The changes could help reduce credit reporting errors that can ultimately prevent consumers from getting credit cards, loans and even jobs. The Consumer Financial Protection Bureau has fielded approximately 185,700 credit reporting complaints as of February 2017, and 76 percent were related to incorrect information. While the CFPB recently acknowledged the credit bureaus have improved their accuracy and dispute handling, errors persist.
But the new standards could also prevent credit card issuers, lenders and renters from getting the most accurate picture of consumers.
“Suppressing tax lien and civil judgment data could artificially raise some applicants’ credit scores, making individuals appear lower risk than they are,” said David Stevens, CEO of the Mortgage Bankers Association.
Getting rid of the unnecessary?
Beginning July 1, the bureaus will exclude all public tax lien and civil judgment data that do not conform to new reporting standards from consumers’ credit reports. According to the Consumer Data Industry Association, new and existing tax lien and civil judgment data must include a person’s name, address and either a Social Security number or date of birth in order to be included in credit reports. Additionally, the credit bureaus must continually verify public record information by making courthouse visits at least every 90 days.
|Who is impacted||What is required||Effective date|
|Collection agencies and debt buyers||No reporting of debts that didn’t arise from a contract or agreement to pay (i.e. traffic tickets, court fines)||June 15, 2016|
|Collection agencies and debt buyers||Report original creditor name and classification code||June 15, 2016|
|Collection agencies and debt buyers||Report a full file monthly||September 1, 2016|
|Collection agencies and debt buyers||No reporting of medical debt collection accounts less than 180 days old||September 15, 2017|
|Collection agencies and debt buyers||Report a delete for accounts that are being paid or were paid in full through insurance||September 15, 2017|
|All data furnishers||Report full name, address, Social Security number and date of birth||September 15, 2017|
|Reporters of authorized user data||Report full date of birth for new authorized users on all accounts||September 15, 2017|
Eric J. Ellman, interim CEO of the Consumer Data Industry Association, said in an e-mailed statement a “vast majority” of all civil judgment data and about half of all tax lien records will not meet the new standards. In separate client notices sent out last summer, both Experian and TransUnion said civil judgments would likely no longer be part of their consumer credit databases.
Tax liens and civil judgments are negative credit report items that can damage a consumer’s credit score. However, the new standards’ overall impact to consumers is expected to be minimal. FICO projects that 11 million of the 12 million consumers who will be affected by the policy change will see an average score increase lower than 20 points. Only about 700,000 consumers — roughly 0.35 percent of the scoreable population — will see their scores jump by 40 or more points.
Ira Rheingold, executive director of the National Association of Consumer Advocates, said excluding such public record information from credit reports is helpful to consumers because it’s often inaccurate or outdated and may not be necessary to make credit decisions.
“I’m not convinced that information is necessary for a credit card company or a mortgage lender to make a good determination about a customer,” Rheingold said. “If it’s publicly available, they can find it for themselves, but it doesn’t need to be put into a credit report.”
However, MBA’s Stevens said mortgage lenders may still face pressure from investors to include lien and judgment information in their decisions — and that could prove costly.
“If lenders become responsible for collecting and reporting public record information, they could be exposed to additional costs, red tape and possible legal exposure,” he said.
Health insurance delays won’t ruin credit
Data furnishers and collection firms must also change the way they report medical debts and consumers’ personal information by mid-September.
Collection agencies and debt buyers must not report a medical debt until 180 days after the date of delinquency. This change will protect consumers from having overdue medical bills show up on their credit reports due to insurance delays. Previously reported medical debts must also be removed from credit reports if they are being paid or have been paid in full by insurance. ACA International noted in a report this month that 17 percent of all debt collection complaints consumers filed with the CPFB in 2016 were related to medical debts.
Additionally, data furnishers will be required to include a consumer’s full name, address, Social Security number and date of birth when sending any credit account information to the credit bureaus.
As for credit card authorized users, those who furnish authorized user data to the credit bureaus must include the full date of birth for newly added users on all existing and new credit card accounts.
Collection firms were required to step up their reporting of creditor information and provide more comprehensive monthly account updates by September 2016. They are also now prohibited from reporting any debts that did not arise from a consumer’s agreement to pay, such as traffic tickets and court fees or fines.
“Whether or not somebody has gotten a speeding ticket or some other fine may not correlate with their ability to pay,” NACA’s Rheingold said.
Meanwhile, the credit bureaus have taken steps to improve the dispute process for consumers. If you successfully dispute an item on your credit report, you can receive a second, updated copy at no charge in addition to the free one you’re entitled to each year under federal law. The bureaus also let consumers know what they can do if they’re not satisfied with the results of disputes, and they’re working to enhance the dispute process for identity theft, fraud and mixed-file cases.
Consumers come out on top
Not everyone will benefit from the credit bureaus’ renewed commitment to cleaning up credit reports. Increased lending or renting to people who neglected to pay taxes or other debts in the past could result in higher delinquency and eviction rates.
But the credit bureaus’ effort to eliminate errors from credit reports should save most consumers — and perhaps issuers and lenders — a lot of stress.
“Anything that makes a credit report more accurate is a good thing,” NACA’s Rheingold said.
The credit bureaus’ National Consumer Assistance Plan: Winners, losers
- Any consumer with a credit history. The NCAP is designed to reduce credit reporting errors, which can prevent consumers who have otherwise clean credit reports from getting credit cards, loans, apartment leases and jobs. It’s also intended to improve the dispute process, which has been notoriously difficult for consumers to navigate.
- Any consumer with a tax lien or civil judgment. If you’ve ever been successfully sued for failure to pay a debt, it’s likely that won’t affect your credit score. If you’ve ever had a tax lien filed against you, there’s a 50 percent or better chance that won’t show up on your credit report.
- Credit bureaus. The three major credit bureaus have frequently come under fire from lawmakers, federal regulators and consumers for persistent credit report errors. The bureaus have cleaned up their act in recent years, but the NCAP may help them get completely out of the government’s crosshairs and improve their image with consumers.
- Collection agencies and debt buyers. The new standards could also help these firms reduce consumer complaints against them and lessen scrutiny from government watchdogs.
- Mortgage lenders. Issuers and lenders are wary of consumers with negative payment information in their credit histories. Striking tax liens and civil judgments from credit reports could make many consumers look less risky than they really are.
- Renters/landlords. Apartment and condo managers routinely perform credit checks to gauge the risk of prospective renters falling behind on payments.
Editor’s note: This story, “Credit bureaus tighten reporting rules — Who wins, who loses?” originally was posted on CreditCards.com.