Credit scores play a major role in most of our lives. Your score can determine how high or low your interest rate is on a car loan, mortgage, or credit card—or if you’re even approved at all.
Recently, there’s been good news on the credit reporting landscape. As of July 1, the three major credit reporting agencies, or CRAs—Experian, Equifax and TransUnion—are making changes that will raise some people’s credit scores, and also help cut down on credit report errors and fraud. The changes are part of an initiative by the CRAs to “to enhance the accuracy of credit report information,” according to information released by the Consumer Data Industry Association (CDIA).
The new standards come on the heels of a Consumer Financial Protection Bureau (CFPB) report that found problems with the credit reporting companies and recommended changes that could help consumers. Incorrect information on a credit report is the top issue reported by consumers, according to the CFPB.
In a nutshell, the credit bureaus have raised their standards for data collection, and two types of public records will no longer be included in credit reports: tax liens and civil judgements.
Data collection standards are now more stringent as well. No new judgments or liens will be included in credit reports unless there is a corresponding Social Security number or birthdate to go along with the consumer’s name and address. These changes stem from longstanding efforts of consumer advocates and government officials to force the credit bureaus to improve the accuracy of credit reports.
In addition, the bureaus will also now check for credit report updates or new records more frequently—at least once every 90 days. And they will remove previous entries to credit reports that don’t meet the new reporting standards.
Who will be impacted?
The changes could affect about half of tax liens and almost all civil judgments now on reports, according to the CDIA. Altogether, about 14 million people—about 7 percent of the population—will have a judgment or lien removed from their credit file, according to Fair Isaac, the company that calculates and sells FICO credit scores. Once that information is removed, credit scores could rise by up to 20 points, Fair Isaac said. While the bump may not be much, it may be just enough to qualify many for credit cards or loans that were previously just out of reach.
While the changes will mostly benefit those with negative public records, it will also help thousands of people who have struggled, often in vain, to have incorrect information removed from their files.
Checking your credit report
If you’re unsure whether you are affected by these changes, check your credit report. Federal law requires these CRAs to give you a free copy of your report from annualcreditreport.com once a year. You are entitled to a free copy of your credit report from each credit bureau once every 12 months.
When reviewing your report, look for labels that say something like “public records” or “derogatory information.” If you find something listed that you think violates the new standards, use the CRA’s dispute process to have it removed.
Other ways to boost your score
If you’re looking for ways to improve your credit score, be sure to always:
- Pay bills on time, every time. This is the biggest factor in credit scores.
- Pay balances down. Keep balances below 30 percent of your available credit. Carrying high balances on loans like credit cards can hurt your score.
- Even if you pay off a balance, keep old credit accounts open unless there’s a good reason to close them, such as an annual fee. Closing accounts can lower your score.
More changes are on the way
As the credit bureaus continue to implement the recent changes, more changes to benefit consumers are on the way. Starting in September, credit reports will eliminate medical debt collection accounts that are less than six months old, a change intended to reflect the sometimes-lengthy process of sorting out health insurance reimbursements.
Resources: CNBC, USA Today, The New York Times, Money Talks News