How public records on your credit report impact your score
When you check your credit reports, you may notice a section named “public records.”
There are many types of public records, but only a few have historically been included on credit reports. If you’re arrested or get divorced, for example, you don’t have to worry about that information hurting your credit. However, if you file for bankruptcy, that’s another matter entirely.
When a public record appears on your credit report, it’s considered a negative by both lenders and credit scoring models, as these blemishes typically stem from a debt or delinquency. If a public record gets added to your report, there’s a good chance it could damage your credit scores and make it more difficult to qualify for new loans or credit cards in the future.
New public record policy
In the past, there were three types of public records that could appear on your credit report: bankruptcies, judgments and tax liens. In recent years, however, there have been major changes that have reduced the number of public records added to credit reports to one.
While it’s still common today to find bankruptcies on credit reports, you typically won’t find a judgment (if a court rules that you owe someone money) or tax lien.
The reason judgments and tax liens have gone missing from credit reports is because of new policies adopted by the three major credit reporting agencies (CRAs) – Equifax, TransUnion, and Experian – stemming from a 2015 settlement between the CRAs and 31 state attorneys general.
The landmark settlement resulted in the creation of the National Consumer Assistance Plan (NCAP), an initiative designed to make credit reports more accurate and make it easier for people to fix any errors.
As part of the consumer-friendly changes, the credit reporting agencies agreed to implement new standards related to public records. Namely, for any public record to be included on a credit report, it has to satisfy the following criteria:
- The public record has to contain, at minimum, the consumer’s name, address, plus a Social Security number or date of birth.
- The public record information must be updated/verified (with a courthouse visit) at least once every 90 days.
Bankruptcy records already met these stricter requirements. Many tax liens and civil judgments, however, did not (largely due to poor record keeping at courthouses).
As a result of the policy changes, in 2017 about half of tax liens and most judgments were removed from credit reports. Then, by April 2018, all three credit bureaus removed all tax lien data from credit reports.
Presently, the only type of public record which should appear on a credit report is a bankruptcy, which can generally stay there between seven and 10 years.
Why public records are different from other credit report items
Public records aren’t added to credit reports in the same way as other types of accounts. With most accounts, such as credit cards or auto loans, your lender (aka, the data furnisher) sends information to the credit bureaus when you open an account.
From there, your lender updates your payment and balance history with the credit bureaus on a monthly basis. The credit reporting agencies then updates your credit reports each month with the new data.
It’s worth noting that the credit reporting process is voluntary. No law makes your creditors report information to the credit bureaus. Likewise, no law forces firms like Experian to add information from a creditor to your report. However, both creditors and credit reporting agencies have to obey the Fair Credit Reporting Act (FCRA) if they choose to include any information on your credit reports.
With public records, however, there is no data furnisher sending information about you to the credit bureaus. The IRS, for example, doesn’t send Experian, TransUnion and Equifax a list of everyone who has a tax lien filed against them. Instead, the credit reporting agencies proactively add public record data to credit reports.
Public records, as the name suggests, are available to anyone. By using services like PACER (Public Access to Court Electronic Records), the credit bureaus can obtain public record information and add it to their databases.
Public records aren’t necessarily gone forever
Although the credit reporting agencies have agreed to remove certain public records from credit reports for now, that doesn’t mean tax liens and judgments won’t be added back to credit reports in the future. There are two reasons: It’s not illegal to put them on a credit report, and the credit bureaus only agreed to remove them for a time.
It’s not illegal
As mentioned, the Fair Credit Reporting Act is the federal law that regulates credit reporting. And the National Consumer Assistance Plan didn’t amend the FCRA, so there’s nothing illegal about including a tax lien or judgment on a credit report, just as long as the credit reporting agencies follow credit reporting time limits and guidelines.
In fact, even the settlement between the credit bureaus and those 31 state attorneys general doesn’t explicitly require the removal of tax liens and judgments from credit reports. The settlement only requires the public records included on credit reports to meet the data requirements mentioned above. If the credit reporting agencies can find a way to efficiently satisfy new public records requirements, you might see tax liens and judgments reappear on credit reports some day.
The agreement to remove tax liens and judgments from credit reports won’t necessarily last forever. According to TransUnion, the CRA only agreed not to include civil judgments and tax liens on credit reports for a few years. Per TransUnion, it “will not resume reporting these public record items on credit reports until Jan. 1, 2020, at the earliest.”
Don’t ignore your debt problems
Although tax liens and judgments might not appear on your credit reports today, there are still plenty of reasons to avoid them.
It’s true you probably didn’t wake up one morning and decide you were no longer going to pay your bills. That’s not the way financial and credit problems start for most people.
Still, even if you’re struggling with bills you can’t pay, you can avoid many tax liens and judgments simply by communicating with the agency or company to whom you owe the debt. The IRS, for example, offers payment plans for taxpayers who can’t afford to pay their tax bills in full. Your creditors might be willing to settle your debt for less, as well.
One fact is clear. When you’re in over your head financially, ignoring your problems isn’t the answer.
Talk to your creditors or consider getting legal help or credit counseling. In extreme cases, bankruptcy might be your best option. Whatever financial challenge you’re facing, you’ll be far better off to face it head on and deal with the consequences, rather than ignoring your problem and allowing it to grow.