Could an Upcoming Data Purge Increase Your FICO® Scores?
, by Tom Quinn
You may have seen recent stories about how the credit reporting agencies (Equifax, Experian, and TransUnion) are scheduled to remove certain derogatory public record information from credit reports this summer and you may be wondering if this is true.
What type of information is being removed? How will it potentially impact one's FICO Scores?
It is true that in July 2017, the three credit reporting agencies are scheduled to make changes to the criteria used to accept the reporting of a tax lien and/or civil judgment.
-
A tax lien is most commonly associated with a failure to pay your taxes. An unpaid tax lien will remain on a credit report for up to 10 years from the filing date. A paid tax lien is deleted seven years from the filing date.
-
A civil judgment is simply a debt one owes through the courts as a result of a lawsuit. If you have been sued and lost, you will likely owe a civil judgment. Once paid, the entry will be updated to show that fact.
When this goes into effect, this will impact the reporting of new tax liens and/or civil judgments going forward. In addition, previously reported tax liens and/or civil judgments that do not meet the new reporting requirements will be removed from the credit file.
This action stems from the National Consumer Assistance Plan (NCAP), which is a comprehensive series of initiatives launched by the credit reporting agencies intended to evaluate and enhance the accuracy of credit reports, the process of dealing with credit information, and consumer transparency.
So, how will this purging of information affect FICO Scores?
FICO recently conducted research to address this question. FICO worked with the three credit reporting agencies to obtain the necessary data designed to isolate the changes that the credit reporting agencies' enhanced public record standards will have on individual credit files. The results showed:
-
Approximately 6-7% of the population with a FICO® Score (~12 million consumers) had a judgment or tax lien purged from their credit report as a result of the enhanced public record standards. Not surprising, this impacted population segment is generally low scoring - having a median FICO Score of 565 (prior to any data being purged).
-
About 5-7% of the population experiences a score increase as a result of the removal of this public record information, but for the overwhelming majority (in excess of 75%) the score increase is less than 20 points. Generally speaking, the removal of these negative items did result in a score increase, but perhaps not to the degree one may have anticipated.
-
A key reason why the impacted population did not tend to experience a significant increase in their FICO Scores pertains to the other information remaining in their credit report. 92% of impacted individuals had other negative information on their credit report (such as missed payments, charged-off accounts, bankruptcy, etc.).
So even though these impacted credit reports all have tax lien/judgment information removed, these files typically have other negative information that weighs on the score and limits how much it will increase by.
What should you expect if you have tax liens/civil judgments on your credit report that meet the purge criteria?
Based on FICO's research findings, chances are the score will increase, but the increase will likely be less than 20 points. The precise impact that this change will have on your FICO® Scores really depends on the information contained on the negative items that will be purged, as well as the composition of the other information contained in your credit report.
Various content sourced from FICO Research Brief: Impact of the CRA's Enhanced Public Record Standards on FICO® Scores.
Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.
