If you’ve heard that some people might get a magic boost to their FICO credit scores in the 10-point range — without having to do anything — you’re right. But hundreds of thousands of consumers’ increases will be much larger.
According to a massive new study of 30 million credit files just completed by score developer FICO, many Americans will experience score bumps in the coming months, mainly modest increases of less than 20 points. But hundreds of thousands of the increases will be super-sized — in the range of 40 to 60 points and higher. The vast majority of consumers, however, will see no change in their scores.
Some basics here: The changes are tied to forthcoming policy initiatives at the three national credit bureaus — Equifax, Experian and TransUnion. As part of an agreement with a group of state attorneys general, in early July the bureaus will stop collecting and reporting public information on virtually all civil judgments (monetary damages awarded by courts against the losing parties in civil disputes) and roughly half of all tax liens (levies against properties when taxes go unpaid). The bureaus have determined that the accuracy of the public records in both these areas does not meet their quality standards. So they are going to remove them from the credit reporting process altogether.
Since these two items traditionally have counted as serious negative indicators of a consumer’s creditworthiness, they depressed credit scores. But because there were troubling error rates in public records data — the names on consumers’ files were mixed up, Social Security numbers omitted — some Americans’ credit scores were lower than they should have been. It was unfair, consumer advocates argued, and the depressed credit scores may have kept qualified people from getting mortgages to buy houses.
But the unanswered questions in this whole issue have been: How many consumers’ credit files contain civil judgment or tax lien entries, erroneous or otherwise? How many have credit scores that are depressed enough to keep them out of homebuying range? And how big a worry might this be for mortgage lenders since they now could be deprived of information they previously considered important? After all, though many consumers’ credit files have erroneous information in them about judgments and tax liens, other consumers do in fact have legitimate judgments and liens filed against them. But starting in July, lenders won’t see them anymore on credit reports, and some applicants’ credit scores may be inflated artificially.