Coming Soon: A New Credit Score Boost for Millions of Americans

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Coming Soon: A New Credit Score Boost for Millions of Americans

Arguably the biggest change to impact credit reporting (and by extension credit scoring) in decades will be going into effect within just a few months. In July of 2017 the 3 major credit reporting agencies (CRAs) - Equifax, TransUnion, and Experian - have announced that they will remove a significant number of the tax liens and judgments which are currently appearing on consumer credit reports. The pending removal of these derogatory public records could potentially boost credit scores for millions of Americans.

Reasons Behind the Change

There is nothing illegal about a credit reporting agency placing a judgment or a tax lien on your credit reports as long as they comply with the law. Of course if incorrect information is reported (i.e. wrong balance, incorrect dates, a public record which is not yours) that is another story all together.

It is important to understand that the Fair Credit Reporting Act (FCRA) absolutely allows for certain types of accurate public record information to appear on credit reports. Judgments have an FCRA requirement to be removed after 7 years and paid tax liens fall under the same 7 year removal requirement. According to the FCRA unpaid tax liens never have to be removed from credit reports, making them currently one of the most difficult credit problems for a consumer to overcome. However, in July this previously massive credit reporting problem is going to simply vanish from the credit reports of many American consumers.

As already mentioned, there is no FCRA requirement to remove public records such as tax liens or judgments from credit reports unless they have been reporting longer than is legally allowed. What then would prompt such a massive change in credit reporting procedure by Equifax, TransUnion, and Experian? The answer is regulatory concerns.

According to a statement released by the Consumer Data Industry Association (the trade organization of the credit reporting agencies), interim president Eric Ellman attributes the changes in credit reporting procedures as being part of the National Consumer Assistance Plan (NCAP). The NCAP was created after the 2016 settlement between the CRAs and 31 different state attorneys general. (Initially the settlement was reached between the CRAs and the New York Attorney General. You can read more about that first settlement here.)

Per Ellman, as a result of the NCAP the credit reporting agencies " have developed enhanced public record data standards for the collection and timely updating of civil judgments and tax liens." These new standards include a requirement for "a minimum of consumer personal identifying information (PII)" such as a consumer's name, address, social security number and/or date of birth to be verified in order to include public record information on a consumer's credit reports. Additionally, a minimum frequency of courthouse visits (specifically at least every 90 days) to update public record information is required under the NCAP. Most of the tax liens and judgments currently appearing on consumer credit reports do not meet these standards set forth in the NCAP and, as a result, will be removed from credit reports altogether in a few short months.  

What the Change Means for Consumers and Lenders

FICO credit scores, the chief credit score brand currently used by most lenders, are designed to consider public records such as tax liens and judgments whenever a consumer's credit scores are calculated. When the aforementioned public records are present a consumer's credit scores are normally impacted negatively. As a result, when the CRAs remove a public record (or multiple public records) from a consumer's credit reports the consumer's credit scores are almost certain to move upward, perhaps significantly. Translation: up to 12 million Americans could potentially see an immediate increase in their credit scores this summer when the majority of tax liens and judgments are removed from credit reports.


up to 12 million Americans could potentially see an immediate increase in their credit scores this summer when the majority of tax liens and judgments are removed from credit reports.

Lenders are understandably troubled regarding the pending change in credit reporting procedures when it comes to public records. After all, lenders rely heavily upon both credit reports and credit scores to predict the risk of doing business with new applicants. Removing tax liens and judgments from credit reports will lead to credit score increases for many consumers, making it more difficult for lenders to accurately evaluate the credit risk of new prospective customers.

Many consumers, on the other hand, are thrilled by the prospect of the upcoming change which could lead to higher credit scores. Of course it is important for these consumers to remember that the removal of a tax lien or judgment from a consumer's credit reports does not make the issue simply go away.

Consumers applying for a mortgage, for example, will probably not be off the hook when it comes to unresolved tax liens and judgments. Although a tax lien or judgment may no longer be appearing on the applicant's credit reports that does not mean that the items will not show up when the lender performs a public records search of its own. Lender requirements to pay outstanding judgments or tax liens (or at least enter into an acceptable payment plan) are not going to change because the public records may be removed from the credit reports. The removal of these items from credit reports could certainly help to bring about a credit score improvement, but that does not mean a legitimate judgment or tax lien would no longer be owed.







michelle-black-credit-expert

Michelle Black is an author and leading credit expert with a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.


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Consumer Financial Protection Bureau Sues Navient

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Consumer Financial Protection Bureau Sues Navient

In one of its final moves under the former presidential administration, the Consumer Financial Protection Bureau (CFPB) filed three separate lawsuits against the student loan servicing giant Navient. Navient currently services the student loans of over 12 million borrowers in the United States, loans which amount to over $300 billion in both federal and private student loan debt.

The student loans in question are not actually issued by Navient itself. Instead the company collects the payments on some 12 million loans on behalf of the US Department of Education, numerous private banks, and other lenders as well. There are 9 total student loan services currently under contract with the US Department of Education, but Navient is the largest servicer. In fact, nearly 25% (1 in 4) of student loan borrowers currently have Navient as their loan servicer.

The Allegations

According to the CFPB Navient failed student loan borrowers and repeatedly cheated many of them out of their rights to lower payments. Richard Cordray, director of the federal watchdog agency, alleged in the CFPB's statement that "For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans. At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs. Too many borrowers paid more for their loans because Navient illegally cheated them and today's action seeks to hold them accountable."

Additionally, the CFPB took issue with Navient's alleged tendency to direct borrowers toward forbearance when financial troubles arose instead of reviewing income-based repayment options. When a borrower takes out a forbearance of their student loan the interest charges on the debt continue to accrue even while payments are not actively being made. The result? An additional $4 billion in interest charges were added on top of the principal loan balances of the Navient-serviced borrowers who enrolled in multiple and concurrent forbearances between January 2010 - March 2015.

Navient's Version of the Story

Navient, of course, has a very different side of the story to tell. The company vehemently denies any wrongdoing whatsoever and plans to fight the CFPB's allegations.

According to Navient the CFPB actually issued an ultimatum to the company to settle by Inauguration Day or be faced with multiple lawsuits. In a press release the company stated that "Navient rejects CFPB ultimatum to settle by Inauguration Day or be sued. The allegations of the Consumer Financial Protection Bureau are unfounded, and the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations."

In addition to allegations of the CFPB suing as a result of political motivations, Navient also maintained that the federal agency was trying to apply newly updated student loan servicing standards to Navient's past dealings with borrowers. In the aforementioned press release Navient stated that the company  "welcomes clear and well-designed guidelines that all parties can follow, and [they] had hoped [their] extensive engagement with the regulators would achieve this objective. Instead, the suit improperly seeks to impose penalties on Navient based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student-loan borrowers, including through higher defaults."

Finally, in response to the allegations that Navient pushed borrowers toward forbearance options in lieu of income-based repayment options, the company pointed out that nearly half (49% to be exact) "of loan balances serviced by Navient for the federal government are enrolled in income-driven repayment plans," and that "assertions that we do not educate borrowers about IDR plans ignore the facts."





michelle-black-credit-expert

Michelle Black is an author and leading credit expert with a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.


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CFPB Fines Equifax and TransUnion

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CFPB Fines Equifax and TransUnion

Think you have just 1 credit score? How about 3 credit scores? If you believed either of these previous statements to be true then you may be in for a bit of a shock. The truth is that you actually have hundreds of different credit scores, and that is no exaggeration.

Credit scores are products and like many products they are created and sold by competing companies. (Think Apple, Dell, and HP). The primary 2 companies who create credit scoring models are FICO and VantageScore. In addition to competing models, there are numerous credit scores which are also created for different purposes. For example, there are auto industry adjusted FICO scores, mortgage adjusted FICO scores, bankcard adjusted FICO scores, and general purpose FICO scores.

On top of the different brands and different types of credit scores there are even different versions or generations of scores as well. The result, as mentioned, is hundreds of different credit scores which are currently commercially available. Some scores are used by mortgage lenders, some are used by auto lenders, and some are only used by consumers themselves.

What does all of this have to do with 2 of the major credit bureaus getting fined by the CFPB? Keep reading. It will all make sense soon.

Equifax and TransUnion Fined

Credit reporting giants Equifax and TransUnion recently found themselves in hot water with the Consumer Financial Protection Bureau (CFPB). The 2 companies were collectively fined $5.5 million plus ordered to pay over $17.6 million to consumers in restitution. The misdeeds? According to the CFPB the credit bureaus deliberately "deceived consumers about the usefulness of the credit scores they marketed." Essentially, the CFPB took issue with the fact that Equifax and TransUnion did not clearly disclose that the credit scores which they sold to consumers were not the FICO credit scores which are typically used by lenders whenever someone applies for new financing.

The CFPB also took issue with the 2 credit bureaus for "lur[ing] consumers into expensive recurring payments with false promises." According to the CFPB both TransUnion and Equifax falsely represented the credit scores they sold as "free" or "only $1." However, consumers actually only received that free or $1 trial for somewhere between 7-10 days before being automatically enrolled in a monthly subscription program for credit monitoring services. The CFPB believes that the billing structure "was not clearly and conspicuously disclosed to consumers."

Do All Scores Have Value?

In light of the recent CFPB ruling and with the large number of available credit scores on the market you might wonder whether or not it is a waste of time to check any credit score other than your "official" FICO score. Not so fast. There is actually no such thing as an official credit score at all.

Lenders do not even all use the same credit scores. As a result, if you were to have your credit scores pulled by 2 different lenders today you would almost certainly see 2 different sets of credit scores returned. (Remember, even if 2 different lenders are both pulling your FICO credit scores they probably are not checking the exact same version of those scores.) The scores both lenders checked might be similar, but it is highly unlikely that both sets of scores would be identical.

All credit scores actually do have value and can be useful tools as long as you understand their limitations and how they work. You should not expect the credit scores you pull online (whether they were free or whether you paid to access them) to match the credit scores your lender will pull the next time you apply for a mortgage. In fact, the 2 sets of scores could be drastically different. However, if you are consistently using those online credit scores to track your progress as you work to improve your credit then those scores can certainly be valuable and beneficial to you. If the online scores you are checking are moving upward then your FICO credit scores will most likely be doing the same.






michelle-black-credit-expert

Michelle Black is an author and leading credit expert with nearly a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.