How Updates to Credit Reporting Standards May Help Homebuyers
It’s no secret that credit reporting is imperfect.
Credit reports can have outdated information, incomplete records, and even mistakes. Unfortunately, these problems can have major effects on your life. An incorrect public record can damage your credit history and credit scores for years to come.
Early in 2017, the credit reporting agencies – Equifax, Experian, and TransUnion – announced they would be removing certain negative records from consumer credit reports to improve accuracy. The adjustment to credit reporting standards takes effect this month, and you may see a nice credit score bump because of it.
Here’s what you need to know about the change to credit reporting standards:
Removal of Tax Liens & Judgments That Don’t Meet Specific Conditions
Civil judgments and tax liens will no longer count against you if the records are incomplete. This update has been made to improve identity matching. Records that qualify for removal from credit reports are those that do not have the following pieces of personal information attached to it:
Your full legal name
Your full social security number
Your date of birth
According to the New York Times and FICO data, the amendment to reporting rules may have a positive impact on the credit of millions of people. An estimated 12 million people will see a removal of a judgment or tax lien due to tightened reporting standards. Some may even see a score increase of up to 20 points.
What does this mean for you?
If you’re home shopping (or considering home shopping), check to see if you’re one of the consumers who experience a credit score boost. A credit score increase could mean you’re now qualified for mortgage products with a lower interest rate than you were before.
The Reason Behind the Change to Credit Reporting
Thousands of consumers have filed complaints against credit bureaus regarding inaccuracies and difficulty resolving disputes. Since credit reports can influence major life events like the home you buy, the job you land, and even the student loans you can qualify for, deficiencies in the reporting system are alarming.
The Consumer Financial Protection Bureau (CFPB) has monitored the credit reporting industry over the last several years to locate areas that need improvement. In a report of findings published this spring, the CFPB recommended credit bureaus focus more time and resources toward improving quality control and refining dispute processes. The CFPB also addressed the importance of holding data furnishers including banks and nonbanks accountable for the information they supply. Ultimately, the responsibility of accurate reporting falls on the shoulders of credit bureaus and entities that provide records that show up on the reports.
The National Consumer Assistance Plan, an initiative launched by the three credit bureaus in 2015, is making strides towards improving the accuracy and transparency of reporting. One of the many adjustments they’re making in response to complaints is enhancing record reporting standards. The removal of certain incomplete and unverifiable public records is a step forward in bettering the system for consumers.