Monday, June 26, 2017

New York Times: Your Credit Score May Soon Look Better

By STACY COWLEY

About 12 million people will get a lift in their credit scores next month as the
national credit reporting agencies wipe from their records two major sources of
negative information about borrowers: tax liens and civil judgments.

The change stems from a lengthy crusade by consumer advocates and
government officials to force the credit bureaus to improve the accuracy of their
reports, which are often speckled with errors and outdated information. Those
mistakes can limit borrowers’ access to credit cards, auto loans and mortgages, or
saddle them with higher borrowing costs.

Starting July 1, the three major credit reporting companies — Equifax, Experian
and TransUnion — will enforce stricter rules on the public records they collect,
requiring each citation to include the subject’s name, address and either their Social
Security number or date of birth. Nearly all civil judgments and at least half of the
nation’s tax lien records do not meet the new standards, and will be eliminated from
consumer credit reports.

The change will benefit borrowers with negative public records, but it will also
help thousands of people who have battled, often in vain, to have incorrect
information removed from their files.

“We’ve filed hundreds of lawsuits over this,” said Leonard Bennett, a consumer
lawyer in Alexandria, Va. “Comprehensively fixing it hasn’t been something the
industry has prioritized.”

That began to change two years ago, when a coalition of 31 state attorneys
general cracked down on the credit bureaus and negotiated a deal that required
sweeping changes to their practices. (New York’s attorney general had previously
reached a separate settlement with similar terms.) The credit bureaus have already
made some adjustments, like removing traffic tickets and court fines from their files,
but next month’s changes will have the broadest effects yet.

Around 7 percent of the 220 million people in the United States with credit
reports will have a judgment or lien stripped from their file, according to an analysis
by Fair Isaac, the company that supplies the formula that generates the credit scores
known as FICO.

Those people will see their scores rise, modestly. The typical increase will be 20
points or less, according to Fair Isaac’s analysis. (FICO scores range from 300 to
850. Higher is better; lenders generally prefer people with scores of 640 and above.)

The biggest beneficiaries, consumer advocates say, will be those who are spared
the frustration of trying to fix errors. False matches have been a common problem.

Without the kind of additional identifying information that will now be required, a
court record showing a judgment against Joe Smith can easily wind up on the wrong
Joe Smith’s credit report. (Last week, a California jury awarded $60 million to a
group of consumers who said TransUnion falsely flagged some of them as terrorists
and drug traffickers because it had mistaken them for others with similar names.)

Starting next month, the credit bureaus will also be required to update their
public records information at least once every 90 days.

That change pleases Brenda Walker, a Virginia resident with a pending lawsuit
against TransUnion over the company’s monthslong delay in amending her report to
show that a tax lien had been satisfied.

Ms. Walker said she had been turned down for credit cards, a car loan and a
student loan she tried to take out for her daughter’s education. “It wreaked havoc,”
she said. “My credit score was so damaged from something that had already been
paid and released.”

The flip side of the change, lenders warn, is that some borrowers may now
appear more creditworthy than they actually are.

“This removes information from the picture that our customers get about what a
borrower has done in the past,” said Francis Creighton, the chief executive of the
Consumer Data Industry Association, which represents credit reporting companies.
“If someone has a big bill that they owe, that’s something that should be part of the
conversation.”

But when the two largest credit scoring companies, Fair Isaac and
VantageScore, tested what happens when tax liens and civil judgments are removed,
both found that it did not meaningfully change the snapshot provided to lenders on
most borrowers.

More than 90 percent of people with a negative public record have other
negative information on their credit file, like late payments, according to FICO’s
analysis. VantageScore experimentally tweaked its model to focus on other data
points, like the number of credit cards a borrower has with high balances, and found
that the predictive value was almost identical.

“Not surprisingly, those with civil judgments and tax liens are likely to have lots
of other credit blemishes,” said Ethan Dornhelm, Fair Isaac’s principal scientist.
“These changes aren’t going to bring those people into the tiers where they’re going
to qualify for prime credit.”

As public records disappear from the big bureaus’ reports, other data providers
are eager to step in and fill the gap. LexisNexis Risk Solutions has for years gathered
public records information from about 3,000 jurisdictions around the country and
sold it to the credit bureaus. Now, with that business drying up, the company is
marketing its own Liens and Judgments Report to lenders.

Because LexisNexis is not a party to the credit bureaus’ settlement, it is still free
to sell that information, said Ankush Tewari, a senior director with LexisNexis Risk
Solutions. The company can accurately link people to their public records, even
without identifying information like a Social Security number, with an error rate of
around 1 percent, he said.

As the credit bureaus continue to work through the settlement terms, further
changes are coming. Starting in September, their reports will eliminate medical debt
collection accounts that are less than six months old, a change intended to reflect the
sometimes-lengthy process of sorting out health insurance reimbursements.

Also that month, all data furnishers — the companies that provide information
about consumers to the credit bureaus — will be required to include each individual’s
full name, address, birth date and Social Security number in their reports.

© 2017 The New York Times Company.  All rights reserved.

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