As a follower of the HOPE4USA Credit Blog you are already aware of the massive credit reporting changes which are on the horizon. The 3 credit reporting agencies have announced that on July 1, 2017 they will be removing the vast majority of judgments and about half of the tax liens from their consumer credit reports in an effort to comply with the National Consumer Assistance Plan (NCAP). (You can read more about that announcement and what it means for consumers here.)
The removal of so much negative public record information is slated to quickly improve the credit scores of millions of Americans. Many consumers are understandably excited about the forthcoming credit reporting changes. Lenders, however, have been much more apprehensive.
Why Lenders Are Nervous about the Change
The new credit reporting policy, greatly anticipated by many consumers, is actually quite worrisome for lenders. Lenders depend upon credit report data and, by extension, credit scores to help predict risk - the risk of doing business with new applicants. In order to remain profitable lenders cannot issue loans to people who are unlikely to pay back those loans plus the agreed upon interest according to the terms of their agreements.
Public records, like judgments and tax liens, on credit reports and the impact which those public records have upon a consumer's credit scores serve the purpose of helping lenders to predict risk more accurately. In other words, the data helps lenders be more profitable. Since lenders are in business to make a profit, just like everyone else, any tool which helps them to achieve that goal is greatly valued. The removal of so much tax lien and judgment data from credit reports will make an important lender tool (traditional credit reports and credit scores) much less effective.
According to LexisNexis, borrowers with a judgment or tax lien filed against them are twice as likely to default on a loan when compared to consumers without these challenges. Additionally, these same consumers are believed to be 5 and 1/2 times more likely to enter into pre-foreclosure or foreclosure when compared with borrowers who do not have judgment or tax lien records. If you can put yourself into a lender's shoes for a moment then you can understand how the sudden inability to access this predictive information would be unsettling.
Introducing LexisNexis RiskView Liens & Judgments Report
In answer to this newly created need in the lender marketplace, Innovis (sometimes referred to as the 4th national credit reporting agency) has announced a partnership with LexisNexis® Risk Solutions. The 2 companies will be combining their efforts and resources to offer the LexisNexis® RiskView Liens & Judgments Report.
According to LexisNexis the new product will offer lenders "uninterrupted access to...lien and civil judgment data." The new report is being advertised as 99% accurate, with a nationwide network of court runners delivering the most current public record data available. Furthermore, LexisNexis states that the new report, available in July of 2017, will be fully FCRA compliant and will feature a "robust dispute resolution process to help consumers report and correct inaccurate information." Of course, whether or not this so-called "robust" dispute process will improve upon the currently problematic dispute processes in place with most of the consumer reporting agencies remains to be seen. Regardless, the report is being marketed to lenders as a solution to fill the hole which will be left by the removal of so much public record data from traditional credit reports.
Significance for Consumers
At this point predictions are purely speculative of course, but chances are high that a significant number of lenders may choose to take advantage of the new RiskView Liens & Judgments Report. The report has the potential to improve a lender's ability to predict risk. As such, consumers who may have been anticipating that the removal of certain public record information from their credit reports might solve all of their problems may be in for a bit of a letdown. Yet the news is not all bad for consumers either as they will be able to look forward to all of the following:
- Most judgments and about 1/2 of the tax liens are still going to be removed from the credit reports produced by Equifax, TransUnion, and Experian in July of 2017.
- The removal of public record information could very likely result in a credit score increase. A consumer may need to pay off a public record in order to qualify for a loan (or for a number of other reasons) of course, but an increase in credit scores could still lead to a number of financial benefits.
To summarize, the removal of a judgment or tax lien is not going to suddenly erase all of a consumer's credit and financial problems, but it is still a small victory for the consumer nonetheless. Additionally, although the details have not yet been released, consumers should have access to a copy of this new liens and judgments report as well as a right afforded to them under the Fair Credit Reporting Act (FCRA). Once the reports are made available it would be wise to request and review your own report to monitor for the errors which are unfortunately far too common among consumer reports.
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.