What happens to credit scores when public records are removed?

New law changes how public records are reported to credit bureaus.

New standards on public records reporting

The new standards on public records reporting at the three major credit reporting bureaus went into effect July 1, 2017. There's been quite a bit of confusion in the the lending world about what this means.

One thing is for certain: many public records that used to be found on credit reports are no longer there.

Lenders are still responsible for knowing this information, and other service providers are filling the gaps to provide it, usually at additional expense to the lender. But what is the effect – now – on credit scores?

In February of 2018, the Consumer Finance Protection Bureau (CFPB) released a report of their findings on the impact of the new requirements on credit scores.

John Culhane Jr. of Consumer Finance Monitor analyzed these results in his article: "CFPB report finds removal of public record data has small effect on credit scores." The title tells you his summary of the CFPB analysis.

How many public records were removed from credit reports due to the new requirements?

The first key point is the scope of public records removed from credit files at the major bureaus:

In June 2017, soon before the new standards were implemented, 6 percent of consumers had a civil judgment or tax lien. As a result of the new standards, about 83 percent of these consumers lost one or more judgments or liens in July 2017. After the new standards were implemented, only 1.4 percent of consumers had a tax lien on their credit reports.

That's a huge percentage of those who had public records who no longer have them in their credit file at the bureaus – gone from their report, scoring model and FICO mortgage score.

What is the result on credit scores?

The second point is the most surprising:

About 4 percent of consumers with civil judgments or tax liens on their credit reports in June 2017 experienced an increase in their credit scores in September 2017 due to the new standards.

Only four percent.

How can removing judgments and liens have such a small effect on credit scores?

The CFPB has one possible explanation for this:

The CFPB seems to suggest that the small effect might have been expected because consumers who had civil judgments and tax liens also had more delinquencies and more derogatory information in their credit reports.

Culhane posits a different take on the report:

The new report’s findings might be seen as subtle criticism by the CFPB under Mick Mulvaney of the Plan and former Director Cordray’s CFPB. In other words, the report’s findings could be seen to show that the concerns about the reporting of civil judgments and tax liens that drove the [National Consumer Assistance] Plan were largely overblown.

We're left in a 'who do you trust' position, statistically speaking. You can read Culhane's article here, and see the CFPB full report here.

Will public records reappear on credit reports in the future?

The changes to the standards were part of the National Consumer Assistance Plan:.

The NCAP was the result of settlement agreements between the NCRCs [Nationwide Credit Reporting Companies - Equifax, Experian, TransUnion] and over 30 State Attorneys General… Starting July 1, 2017, public record data furnished to the NCRCs for inclusion on credit reports had to contain name, address, and Social Security Number and/or date of birth, and had to be refreshed at least every 90 days.

Theoretically, this could be fixed going forward. Whether these requirements are met and these public records make it back into credit reports remains to be seen.


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