Vail Daily guest column: Credit reports and reporting are about to change
There is a big change coming out there for millions of consumers in terms of their credit scores and credit report. Starting July 1, the three major bureaus will no longer report most judgments and tax liens.
This change is, in part, due to the efforts of the Consumer Finance Protection Bureau. For many years there have been known issues in reporting such data. Typically, when a tax lien or judgment is filed the document does not include a Social Security number.
Thus, in a large metro area if Joe Johnson never met a bill he liked to pay and has a stack of judgments and liens against him, every Joe Johnson in town might be plagued by cases of mistaken identity and have to explain to the credit bureau that they are not the same person. Although credit bureaus have always been required to use reasonable care in matching up a lien or judgment to the correct consumer’s record, so much of today’s record keeping is done by automation that thousands of mistakes were being made regularly.
The second part of the story is that today’s credit scoring models put less weight on a judgment or lien than in the past, and the experts who spend their days figuring out how to better predict and score consumers behavior have deemed that liens or judgments are not really indicative of future behavior.
In the past year or so credit scoring models have evolved to include what is called trended data. The bureaus now look at a consumers’ habits of paying the minimum or paying more. They track the percentage of available credit used throughout time versus the day the score is pulled.
In the past, a consumer could often pay off one card long enough to pull his credit report and see a huge jump in his score. That is harder to accomplish these days. The scoring models look at a rolling average of balances for the past 24 months and if a consumer was tapped out most of the time and suddenly pays off a card or two, then the impact will be duly noted but it’s not a dramatic event.
Nevertheless, if you have a lien or judgment showing on your credit report, then getting rid of it won’t hurt your score and could help you get a better interest rate (because interest rates borrowers charged are impacted by their score). There are no set number of points a score will go down because of a lien, so its case by case what impact it might have.
If you think lenders won’t find out about your judgments or liens, then you are likely mistaken. There are a number of entrepreneurs out there who are suddenly offering search programs to check applicants’ public records for lenders.
Title companies as well usually check to see if there are any liens against people who are selling homes, because such a lien attaches to real property and must be settled if you are selling your home.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and can be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His web site is http://www.mtnmortgageguy.com.
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