Some Consumers Will See Credit Scores Jump, Starting This Month

KENDALL, FL - MARCH 07: Ileana Garcia looks in her wallet for credit cards she wants to melt over a hot plate as she tries to dig herself out of credit card debt during a sermon by Kevin Cross about faith-based financial management at the Miami Vineyard Community Church on …
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Credit scores for some consumers will jump by as much as 30 percent, starting this month, due to changes in how credit companies report consumer debt and payment history.

The new reporting standards, set to kick in on April 16, the day before Tax Day this year, will require all three major credit reporting companies to exclude tax liens from credit reports, thereby improving credit scores, CNBC reported.

Credit scores are the chief way lenders assess risk when reviewing loan applications for everything from buying a home or car to getting education loans to opening new credit card accounts.

The new rules come on the heels of a Consumer Financial Protection Bureau report that maintained that problems inherent in the way the credit bureaus operated unfairly hurt some consumers.

Other changes in reporting procedures have already been implemented. Last July, the bureaus stopped reporting civil judgment data and about half of the tax lien information from Americans’ credit reports.

By some estimates, about 11 percent of consumers will see an instant improvement in their credit reports when the tax liens are removed.

Some industry analysts, however, feel the elimination of such debt information will hurt more consumers than it will help. Once the information is made invisible to the financial service industry, loan officers may be more reluctant to approve loans due to reticence over unknown debts that cannot be assessed in the loan process.

With the resulting absence of information, “lenders and servicers have to hedge for that risk,” said Nick Larson of LexisNexis Risk Solutions.

Larson added, “Overall, consumers actually get hurt.”

Follow Warner Todd Huston on Twitter @warnerthuston.

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