Judgments on Credit Reports

​Starting July 1, 2017 the big three credit reporting agencies will stop reporting civil judgments or tax liens in many cases. Equifax, Experian, and TransUnion will begin removing tax lien and civil judgment data from reports if the information does not provide details on consumers such as a person’s name, address, Social Security number, or date of birth. This policy change is part of the National Consumer Assistance Plan created as a result of settlement with numerous State Attorney Generals in an effort to improve credit reporting accuracy. Oversight from newly created Consumer Financial Protection Bureau likely also played a role as well.

Many States like North Carolina do not typically include Social Security numbers or birth date information as part of the public record for civil judgments. As judgments in NC are good for ten (10) years and can be renewed for an additional 10 year period this is significant news. Removal of judgment reporting means some consumers may experience a boost to their credit score in the coming month as negative items are removed from their credit report. As fixing credit report errors is often a nightmare for consumers this is a welcome change to the bureaucracy of the credit reporting industry. The Wall Street Journal is estimating this change will improve the credit score of some 12 million individuals in the United States. The expected increase is a modest 20- 40 points.
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​Not everyone is celebrating the change. Lenders are worried they will not be able to properly evaluate the risk of giving loans to individuals with incomplete information. As one analyst stated: ““Just because the lien or judgment information has been removed and someone’s score has improved doesn’t mean they’ll magically become a better credit risk.” Industry recognition of this could result in a new risk premium everyone has to pay for loans.
 
One should expect lenders and creditors to adjust to the policy change by attempting to comply with the reporting requirements by sending in judgment information directly to the credit agencies with the required identity verification data. In the end this may turn out to be a short lived artificial credit score increase for individuals while their creditors scramble to comply with the new reporting requirements.