In July 2017, the credit bureaus have announced that they’re taking the initiative to eliminate or “purge” most of the tax liens and public judgments from credit reports. Indeed, that’s a big relief for most of the consumers.
The three credit bureaus, Equifax, Experian and the TransUnion, are going to implement new rules for new and existing tax lien, public judgment records, or civil judgment data starting around from the 1st of July 2017.
So, practically this means – Consumers having tax liens or judgments on their credit reports are getting that information erased from the reports totally.
Tax liens are different from other negative items on your credit reports. Tax liens aren’t directly reported to the credit bureaus by your state taxing authority or the IRS. The three credit bureaus actively look out for such information regarding public records.
There’s no obligation in the FCRA (Fair Credit Reporting Act) that’ll require this removal of liens and judgments. Even there’s no conflict in the settlement language between the credit bureaus and all attorney generals that can influence this decision.
This choice is totally made by the credit bureaus for the betterment of common people.
Normally a judgment stays on a credit report for 7 years from the date of filing. Also, unpaid tax liens aren’t erased from credit reports. Even when a lien has been paid and released, it will still remain on the credit report.
So, the decision made by the three credit bureaus will effectively remove some of most crucial negative items from the credit reports.
This decision taken by credit bureaus is also causing some issues for lenders. They mostly use credit reports and credit scores to judge a person's’ credibility while reviewing his/her loan application. From July onwards, the credit report isn’t going to show the judgments or tax liens anymore; so the lenders will face problem to judge riskier people with liens and judgments. Consumers with liens or judgments are twice as likely to default on loan payments.
While this is a good news for common people, but it’s not-so-good for creditors and lenders who depend on credit scores and reports for taking their final decisions. It's now becoming very difficult for them to figure out how they’re going to differentiate between a risky borrower and a genuine borrower after July 1, 2017.
What happens next?
The approval process will be easier and approval time will be short as well. So, the borrowers might be influenced and could apply for additional credit activity. As a result, it is possible that the economic activity will be boosted pretty well. But it could potentially increase risks for lenders. As I said earlier, lenders will not be able to assess genuine applicants.
Erasing judgment and tax lien from credit reports may cause changes in consumers’ credit scores. As per myfico.com, approximately 12 million U.S. consumers, or about 6% of the total U.S. citizens have FICO credit scores, and they’ll notice the increase in their scores because of this decision.
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