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Tax Liens and Civil Judgments Will No Longer Affect Your Credit Score

As of July 1st, 2017, tax liens and civil judgments will no longer affect your credit score.  The three most influential credit reporting companies – Experian, TransUnion, and Equifax – have made the decision to subject public records to stricter rules going forward.  Each public record used in determining a credit score must include the subject’s name, address, and either the social security number or the date of birth.

The new approach will affect two groups of people: those with negative public records and those who have fought to have incorrect information removed from their files.  There are thousands of cases per year of people’s credit score reflecting either outdated or incorrect information.  Since credit scores affect so many financial choices that we make, the credit agencies have decided that it no longer makes sense to use information that is often incorrect.  For example, if a civil judgment is against Adam Smith, the credit agencies previously may have reflected the judgment on the credit score of the wrong Adam Smith.  The credit companies will now make sure this doesn’t happen.

The change in practice was brought about after a coalition of 31 state attorneys general took a hard line with the credit bureaus and negotiated a deal requiring the companies to make drastic changes to their credit monitoring practices.  Previously the bureaus had made adjustments such as removing traffic tickets and court fines from files, but the July 1st changes will take it a step further.

Estimates show that about 7% of those in the US with credit reports will have either a judgment or a lien removed from their report.  The typical increase will be modest, most likely around 20 points.

The move made by the credit agencies will not strip the IRS tax liens of their power.  The hit to a credit score is usually one of the more minor affects of have a tax lien filed against you.  Tax liens affect your ability to sell or purchase a home.  They can also affect job prospects, as some employers perform lien searches on prospective employees.  Often those with tax liens also have other marks on their credit which have a larger impact anyway.

Overall it seems like a prudent move for the credit agencies to stop including information in credit scores that is hard to verify.  Once tax liens were released by the IRS, it would often take months of fighting with the credit agencies to have the blemish removed.

If you have any questions about the changes, please give us a call and we would be happy to provide more information.

 

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