Why Are Credit Scores About to Rise?

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Beginning this weekend, the three major credit bureaus will implement policy changes that in many cases will result in an increase in consumers’ credit scores.

TransUnion, Equifax and Experian will require more documentation for public records such as civil judgments and tax liens on consumers’ credit reports. By requiring more information and more frequent updates, the credit bureaus expect all civil judgments and at least half of all tax liens will be removed from consumers’ credit reports by July 1.

Based on analysis from the personal finance website WalletHub, up to 9%, or 20 million people, will see their credit score rise. That might result in an increase of one’s credit score by about 10 points and some may see a rise of as much as 20 points. Those with credit scores between 351 and 500 are most likely to see their credit scores rise.

The credit-reporting changes were first announced earlier this year. In March, Eric J. Ellman, interim president and chief executive officer at Consumer Data Industry Association, said at the time:

[T]he enhanced standards for public records carefully balance the concerns of consumers and regulators about public record accuracy while at the same time ensuring that creditors can continue to rely on credit report data and credit scores derived from the data.  announcement of the reporting changes.

A civil judgment on a person’s credit report means he or she has lost a lawsuit and the judge has ordered the person to pay the debt for which he or she was sued. This means the government is first in line for a person’s disposable income, leaving less left for credit card and loan payments.

A tax lien converts property such as a house or car into collateral for an unpaid tax obligation. The lien prevents a person from selling that property before paying the government what it’s owed.

Civil judgments and tax liens will be listed in the public records section of a person’s credit report.