Hundreds of thousands of consumers are about to catch a break on credit scores, possibly adding enough points to qualify for credit cards or loans that had been just out of reach.
That’s because what goes on credit reports is changing — and your credit scores are assembled from what’s on your credit reports.
Here’s what’s changing and how it might affect you.
Credit bureaus are getting pickier about including two types of public records on credit reports:
- Tax liens, which relate to unpaid state or federal taxes
- Civil judgments, which can result from a lawsuit saying you owe money
Until now, the documentation required to put these score-damaging marks on credit reports has been minimal. But starting July 1, the bureaus will handle them differently.
More identifying information: New judgments and liens won’t go on credit reports unless they have a Social Security number or birthdate to go with the consumer’s name and address.
Frequent updates: The bureaus will check for updates or new records at least once every 90 days.
Scrubbing old data: The bureaus will begin to remove previous entries that don’t meet the new standards.
The changes could affect about half of tax liens and almost all civil judgments now on reports, according to the Consumer Data Industry Association, a trade group representing the three major U.S. credit bureaus.
Will it affect you?
Up to 14 million people — 6% to 7% of consumers with FICO scores — will be affected, but most won’t see big jumps.
That’s because public records of lawsuits and tax liens are rarely the only negative marks on an otherwise pristine credit report, says Ethan Dornhelm, vice president for scores and analytics at FICO. They tend to keep company with things like missed payments, accounts in collections and other score-lowering items that will remain on reports.
Dornhelm estimated 92% of people affected by the July changes will have other negatives holding their scores steady.
As for the other 8%? FICO and its competitor, VantageScore, did independent tests on the effect of removing the data and found an average bump of just 10 points.
How can you check your information?
Starting July 1, credit reporting agencies will begin removing previously collected public record data that does not meet the new standards, Consumer Data Industry Association spokesman Bill Mashek said.
With that in mind, August would be a good time to pull your credit reports. You get at least one free copy from each credit bureau every 12 months via AnnualCreditReport.com. If it’s been less than a year since you last requested them, try a source of free credit report information, such as NerdWallet.
Look for a label that says something like “public records” or “derogatory information.” If you find something listed that you think violates the new standards, use the credit bureaus’ dispute process to ask that it be removed. Contact information is on each bureau’s website.
What can you do with a bump in score?
A gift of credit score points can only help, especially if you’ve been on the border of the next score range. Even a small boost could widen your access to credit or improve the interest rates you get.
Have damaged credit? Use those “free” points to kick-start restoring your credit. Build on your momentum with these rock-solid steps:
- Pay bills on time, every time. Timely payments are the biggest factor in scores. If you’ve had some slip-ups, rest assured that the further a delinquent payment recedes into the past, the less it will hurt your score.
- Pay balances down. Balances above 30% of your limit can hurt your score. That’s why paying down debt not only eases your financial stress but also helps your score.
- Keep old credit accounts open unless you have a good reason to close them, such as an annual fee. Closing an account can hurt your score.
Bev O’Shea is a staff writer at NerdWallet, a personal finance website. Email: [email protected] Twitter: @BeverlyOShea.