Tax Lien Data Dropped From Credit Bureaus

By: Lance T. Denha, Esq.

If your credit scores are a little higher all of a sudden and you can’t figure out why, there’s an explanation. As of April 16, 2018 all three credit bureaus (Experian, Equifax, and TransUnion) began removal of all tax liens from consumer credit reports. If someone was facing a tax lien, that information could be dragging your credit score down by as much as 30 points on the FICO scale of 300 to 850. With all tax liens stricken from the credit record, some consumers may see a jump in their scores.

The change is a result of a Consumer Financial Protection Bureau Study that reported issues with the way information was sent to credit bureaus. Last July, all three bureaus implemented changes to how they would include items such as civil judgments and tax liens on consumer credit reports.

The new rules required that public records data, such liens, and civil judgments, had to contain a consumer’s name, address, Social Security number, and/or date of birth. The information also had to be refreshed every 90 days. If public records data did not meet this criteria they had to be excluded from credit reports. This was a result of settlement agreements between the Credit Bureaus and 31 state attorney generals.

As a result, 96% of civil judgments and 50% of tax liens had been removed from credit reports since last summer. Now, the credit reporting agencies will eliminate the last remaining tax lien data from consumer credit reports, which is about 5.5 million records.

It is certainly feasible now that the public record data has been scrubbed, people who may not have otherwise been issued a loan because they had liens or judgments on their file have now been issued loans. But there won’t be a definitive answer for some time, as it typically takes 18-24 months to see any uptick in default rates.

It should be noted that removing tax liens from credit files will have very little impact on credit scores for people that have good credit. But if you are struggling with credit and have a weak credit file, this will help you. The consumer who has a tax lien is now automatically having a negative entry removed from their credit file. To lenders that base lending decisions primarily on credit scores, consumers with tax liens will look more creditworthy than they are.

Whether your credit report is affected or not, be sure to check your credit reports from all three bureaus to ensure the information is accurate.