The new rules start July 1 and eliminate some key negative items.
Negative items in your credit report can be a source of frustration. They look bad to lenders that run credit checks when you apply for new credit. They also contribute to decreasing your credit score and unless the item is a mistake, it usually sticks around to sully your credit for at least seven years. But new credit report changes that go into effect July 1 could change all of that.
The big three credit bureaus in the U.S. (Experian, Equifax, TransUnion) have agreed to remove two key types of negative information that currently get reported. As of July 1, credit reports may no longer list tax liens and civil judgments if the information is incomplete.
The last part is important. The credit bureaus say they will still report negative items if they have complete information in the data they receive. That includes 4 key things:
- The person’s name
- Their address
- A valid, matching Social Security number
- The person’s date of birth
If even one piece is missing from what the bureau receives, that item will not appear in your credit report. This change applies to both new data the bureaus receive after July 1 and existing data already being reported. If you currently have a reported tax lien but the information is incomplete, that item will be removed in July.
Where does this credit reporting change come from?
This change in reporting information comes after a report from the Consumer Financial Protection Bureau. The CFPB listed issues they identified in public records reporting data, specifically noting challenges with identity matching and outdated records. As a result, the three bureaus decided together that they would implement this new rule that data must be complete.
It’s important to note that the adjustment is not a federally required regulation. The Fair Credit Reporting Act (FCRA) and other legislation dictates what can and cannot be legally reported in consumer credit reports. However, those standards are relatively broad. What’s more, the bureaus often make decisions to expand on or enhance rules establish by the law.
Two previous examples of bureau-driven reporting adjustments:
- According to the FCRA, bankruptcies can be reported for up to 10 years from the date of final discharge. However, the bureaus decided that they would remove the negative item for a Chapter 13 bankruptcy after 7 years. The 10-year legal regulation now only applies to Chapter 7 bankruptcy.
- Unpaid tax liens (complete data or not) can remain in your credit file indefinitely per federal law. However, Experian made the decision to remove unpaid tax liens after 15 years; the other two bureaus follow the regulation.
What does “civil judgments” cover?
A civil judgment refers to any debt incurred as a result of losing a civil court case. This can be anything from a lost lawsuit to suits for back child support and alimony.
More changes coming soon
While the removal of incomplete tax lien and civil judgment items will improve many consumers’ credit reports, we can look forward to an even bigger change by 2018. The credit bureaus plan to remove medical debt collection accounts that a patient’s insurance company paid.
That’s a big deal, considering how many people say medical debt is a major source of credit frustration. The issue is so serious that Congress moved several times to amend or add to the FCRA to address problems caused by medical debt. Here’s the report from 2014 and an earlier report from 2011). Unfortunately, this is another area where gridlock in Washington has led to delays.
Luckily, the credit bureaus finally decided it’s time to move even without a regulatory mandate from Congress. This new change will mean negative items created by insurance mix-ups won’t end up ruining your credit.
This is a rampant problem, where a person thinks insurance will cover a medical bill but then it doesn’t. When it’s not, these bills can pass into collections. The first sign you have that something is wrong is when the collection agency calls you. By then, the item has typically already become a negative credit report item.
For more information on your credit report, visit Consolidated Credit’s Comprehensive Guide to Reading Your Credit Report.