With the Removal of Civil Judgements
and Some Tax Liens, what will the
credit reporting changes do to
Not as much as you would think.
As you probably already know, the "Big 3 Credit Bureaus" are making required changes to the criteria used to report a tax lien and/or civil judgment.
It is anticipated that already reporting tax liens and/or civil judgments that do not meet the new criteria will be removed from the 3 consumer credit reporting agencies data.
So, when that happens, all consumer credit scores that use this data will be effected.
Will my FICO score go up?
That's hard say without more information.
I decided to go direct to the source, so I went to FICO.
And what I found was shocking.
Until you think about it.
Then it's not shocking.
It makes perfect sense.
To those in the mortgage arena, how many credit reporting judgments or tax liens have been the only reason you could not approve a potential client?
As the owner of a relatively large credit restoration company, I work with a very large number of Mortgage and Real Estate Professionals. When calling to discuss these changes with them, our conversation on the topic always starts the same way. From young, fresh, excited L.O.s all the way up to CEO's of major mortgage companies, banks, and credit unions, they all immediately want to know "How will this affect my customers credit scores"
My answer is always the same- It probably won't.
We'll come back to this, but first-
On FICO's blog, I found the results to their recent research and learned what type of credit score increase we can expect to see with the removal of these types of public records.
The results were very shocking and very similar for all three of the Big 3 credit reporting giants.
"Our results showed that NCAP-related public record removals have no material impact on the aggregate population to the FICO® Score’s predictive performance, odds-to-score relationship, or score distribution.
For example, the figure below compares the FICO® Score 9 distribution on the total US population before vs. after NCAP-related public record removal; the two distributions are nearly identical.
-Based on FICO’s analysis, only 6-7% of scorable credit files are impacted,
and these files are very likely to have additional derogatory information on their credit file.
-Therefore, impacted files tend to score relatively low, even after these
public records are removed, and more than 75% of FICO® Score increases are
less than 20 points.
Since we determined that few consumers were impacted, and the vast majority of those
impacted consumers had other derogatory information and FICO® Scores that remained low,
the ability of FICO® Scores to rank-order risk on the total population prior to these public records
being excluded is almost identical to what lenders would experience with these public records
Our analysis also showed that volumes above or below score cut-offs remained virtually unchanged on the aggregate, and there was no material impact to the bad rate at a given FICO® Score.
While lenders are encouraged to conduct analyses quantifying the impact of NCAP-related
public record removals on their own portfolios, they may find that they do not need to make
notable changes to their strategies." source FICO Blog
It doesn't make sense. At first.
Common sense says when you remove a public record, your score will go up, right?
That's what all the self-proclaimed "credit repair experts" out there will tell you.
But think about it, it makes sense.
Remember the question we were going to revisit?
How much will my clients scores go up?
Or, better yet, how much will MY score go up?
It probably won't, and here's why-
If you have a judgment or tax lien, it is probably not the only negative account you have.
Or, for our mortgage pro's, when was the last time the only thing effecting your customers credit score,
or the only reason you couldn't offer an approval was because of only a judgment or tax lien.
Even though a public record can hold more weight than other negative accounts, as many as 93% of the
credit files that contain a public record also contains other negative accounts. These other negative accounts
are also effecting the scores and keeping them below the credit score required by FHA and the mortgage industry.
And of the small 7% that did see an increase when a public record was removed, 75% of the 7% experienced an increase of less than 20 points.
So, in 7% of the cases there was a 20 point increase. Hardly enough points to get excited about, but the fact that they will no longer report is!
if you have any questions, need advice on removing any that are NOT removed, feel free to contact my team at firstname.lastname@example.org , by phone at 972.279.0444 or contact me direct at email@example.com.
Founder / President
700 Credit Repair