New improved standards for using public records became effective in July 2017 for credit reporting companies. The new changes will result in the increase of many individuals’ credit scores, some as much as 20 points. The major changes are based on excluding information related to tax liens and civil judgments on consumer’s credit reports. About seven percent of the American population will benefit from the changes.
Having a higher credit score can result in a number of positive consequences for consumers, including being qualified for loans that they were not before, receiving better interest rates as well as receiving better terms. Ultimately, higher credit scores can result in lowering the cost of borrowing.
However, some sources are concerned that the change could have negative consequences on individuals who do not have civil judgments or liens on their credit report. Lenders may ultimately increase interest rates to compensate for the additional risk of lending to borrowers who now have the credit score to qualify for their products. Ultimately, this could cause consumers to see higher costs of borrowing after lenders compensate for the new risk.
The support behind the changes is based on the belief that tax liens and civil debts are a large source of errors for consumers. The Consumer Financial Protection Bureau says that incorrect information on a credit report is the main problem reported to the agency. The agency recently released a report identifying problems with credit reporting companies and made recommendations on how to assist consumers.