Some Americans may see a boost in their credit scores this summer thanks to new policies adopted by credit report agencies Experian, TransUnion, and Equifax.
The big three credit bureaus will eliminate some negative information from appearing on credit reports, according to the Consumer Data Industry Association, a trade association that represents them.
But before you anticipate more credit approvals on the horizon, it’s important to keep in mind that these changes will likely affect only a small portion of the population. Here’s how these credit report updates may impact you this year.
Policy changes address consumer complaints
Experian, TransUnion, and Equifax will exclude tax liens and civil judgments from credit reports if the data does not include the borrower’s full name, address, and either a Social Security number or date of birth.
The credit bureaus say the new policy will take place on July 1, 2017. It will apply to new tax lien and civil judgment data added to credit reports, as well as existing data.
Many debt collection firms that take borrowers to court do not have all of the above identifying criteria when suing for unpaid debts. Therefore, the credit bureaus may eliminate most civil judgments resulting from unpaid debts from the credit histories of some borrowers.
This change springs from regulatory concerns raised by the Consumer Financial Protection Bureau (CFPB) earlier this month.
According to the CFPB, there have been 185,700 complaints related to credit report disputes since February 1 of this year. Consumers often complain that the credit bureaus include damaging inaccuracies on credit reports or disproportionately lower credit scores because of non-loan related debt.
And even after they dispute inaccuracies or issues and the credit agencies resolve them, consumers say their credit scores do not improve.
Since 2015, the three credit report agencies have reached settlements with more than 30 states over how they handled credit reports. They also now remove non-loan related items such as unpaid gym memberships and traffic tickets.
Additionally, all three credit bureaus will remove medical debt collections accounts that have been paid by a patient’s insurance company from credit reports by 2018.
How it will impact credit scores
Removing tax liens and civil debts could potentially cause credit scores to rise. Some consumers will appear more creditworthy thanks to these developments.
But even for those who will benefit, an increase in their credit scores will be modest. FICO projects that just under 11 million people will experience a score improvement of fewer than 20 points, according to The Wall Street Journal.
What’s more, lenders will still be able to check public records on their own to find information about tax liens or other debts, even if the credit bureaus don’t report it.
Still, lenders may be nervous about this change. Even a modest bump can make formerly ineligible borrowers suddenly eligible for loans or other forms of credit they would not otherwise receive. And that means lenders will be shouldering more risk when it comes to debt.
Will you see a change?
While some people will see an increase in their credit scores, the updates from the credit bureaus will not affect the majority of the population. Experts expect 12 million people in the United States to be affected. That’s only six percent of the population.
This is because the changes do not impact how the credit bureaus report common debts such as missed bill payments for rent or utilities, credit card debt, or student loans. These common forms of debt will stay on your credit report as they are today.
What you can do to improve your score
Before the changes go into place on July 1, you can take action now to ensure your credit report is in good shape and that your credit score is accurate.
One of the best ways to maintain an excellent score is to monitor your credit report regularly. Remember, you are entitled to a free credit report from each of the three credit bureaus once every year (get them at AnnualCreditReport.com).
You can collect all three credit reports at once or stagger reports and take out one every four months. The latter option allows you to check your credit throughout the year without having to pay for an additional report.
During your credit report review, look for any inaccuracies or fraudulent activity. It’s possible to find a simple mistake, such as an account belonging to someone else with a similar name listed on your report. If someone fraudulently took out a loan in your name, you can catch it early this way, too. By reaching out to the reporting credit bureau, you can have these items removed and boost your score.
Make sure you also keep up with the minimum payments on all of your debts, including credit cards, student loans, and car payments. Making payments on time significantly impacts your credit score in a good way.
Managing your credit score
While the changes made by the three credit reporting agencies are a huge shift in the industry, it is unlikely that these updates will dramatically affect many people.
So before getting excited about your credit score improving overnight, take stock of your current situation and identify areas for improvement. By taking an active role now, you can set yourself on the path to a more secure financial future.
For more information about improving your credit score, check out this article on how to get a 700 credit score (or higher).
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|