Now to FICO’s groundbreaking study. Examining giant samples of credit files supplied by the credit bureaus, researchers estimated that between 12 million and 14 million Americans have judgments or tax liens in their current files that could be affected by the changes. When these items are purged, their FICO scores tend to jump. (FICO scores range from 300 to 850, with higher scores indicating a lower probability of default.)
Most of the affected consumers’ files saw increases in scores between 1 and 19 points — not a big deal. But between 1 million and 2 million consumers appear to be in line for score boosts of 20 points to 39 points, and 300,000 or more could see FICO increases of 60 points or higher, simply because negative information will be expunged from their files. Between 93 percent and 94 percent of all Americans have no tax liens or judgments in their files and will see no change in their FICOs — at least not attributable to the new credit bureau policies.
So what does this mean for prospective homebuyers? It depends. FICO researchers found that most people with judgments and liens — 92 percent — also have other negatives in their credit files. Their current median score is 565, well below what’s needed for most mortgages. Adding on a few points won’t help them much — nor will they likely pose major problems for lenders.
Among the biggest gainers, according to Ethan Dornhelm, FICO’s analytic science director, will be people who already have solid FICO scores — they pay their bills on time — but somehow have judgment or lien entries in their credit reports. Once these are expunged, a fortunate 700,000 of these folks nationwide who have no other negatives in their files should see their FICO scores soar by 40 points or more. And that could open the door for them to lower interest rates and better mortgage terms, beginning this summer.
One of them could be you. Check out your credit reports and see what might be lurking there.
Kenneth R. Harney of the Washington Post Writers Group is a past member of the Federal Reserve Board’s Consumer Advisory Council and is currently on the board of directors of the National Association of Real Estate Editors. Reach him at KenHarney@earthlink.net.