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Removal of tax liens could mean a jump for your credit scores

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On April 16, some consumers waking up to check their credit may have been in for a pleasant surprise — credit scores may have increased overnight.

As CNBC reports, improved standards in how the three major national consumer credit bureaus — TransUnion, Equifax and Experian — look at new and existing public records could mean higher scores for some. All three bureaus are removing all tax liens from consumers’ credit reports.

In July 2017, the three major credit bureaus estimated that about half of all tax liens and nearly all civil judgments had been removed from consumers’ credit reports. Now the remaining tax lien data is being removed.

Both actions are part of the National Consumer Assistance Plan, which is a result of an agreement between the three major credit bureaus and 31 state attorneys general reached in 2015.

The NCAP includes a series of actions and policy changes that are intended to improve credit reporting data accuracy, quality and consumer credit education.

What does this mean for you?

Tax liens and civil judgments on your credit reports could lower your credit scores, so the removal of this information from credit reports could lead to an increase in some people’s credit scores — but not for everyone.

As of 2017, TransUnion and Equifax found that about 9% of people in the national consumer credit databases had either a tax lien or judgment reported on their credit file.

Based on those numbers, about 19.8 million people may now see their scores increase as a result of the changes.

Why should you care?

If you’ve never had a civil judgment or tax lien on your credit reports, this news probably won’t affect you.

But if tax liens on your public records have dragged your credit scores down in the past, this news could mean good things for your credit reports and credit scores.

It’s important to note that lenders may still consider tax liens and civil judgments — even as the major credit bureaus move away from them.

This may be particularly true for consumers trying to get a mortgage. Mortgage lenders may want to see this information when reviewing an application, and they could have a means of getting it from sources other than your credit reports.

For example, LexisNexis Risk Solutions — an aggregator and seller of information that commercial organizations, government agencies and nonprofits use to evaluate individuals, businesses and assets — now offers a LexisNexis RiskView Liens & Judgments Report, which was created specifically to fill in the tax lien and judgment information for lenders.

Bottom line

The recent action may stack on top of any impact consumers saw last July, giving some consumers a modest boost to their credit scores.

This additional score boost may come as a welcome event to consumers whose scores may have been weighed down by a tax lien.

About the author: Brian Spychalski is a former Credit Karma freelance contributor now based in San Francisco. He has a background in corporate finance and a deep knowledge of the consumer credit market. When he’s not working, Brian can… Read more.