Do you monitor your credit scores and reports? If you do, and you have a judgment or tax lien on your credit reports, you may be in for a welcome surprise. After July 1, 2017, many of those items won’t appear on credit reports. For some, this change could result in a credit score boost. And business owners are more likely to be impacted, according to data from Nav.
The law allowing negative items such as these to appear on credit reports hasn’t changed. Under the Fair Credit Reporting Act, tax liens and judgments can remain on credit reports for seven years or longer, depending on whether they’ve been paid.
Credit reports are supposed to be accurate; however, in the past a number of consumers have complained to regulators that their credit reports listed judgments and tax liens that didn’t belong to them. There were also complaints that information wasn’t being updated after these items were resolved. Recently, the major credit bureaus unveiled an initiative called the National Consumer Assistance Plan (NCAP) to increase accuracy in credit reports. Under the NCAP, public record information (information recorded with the courts) must contain enough identifying information to match it to the consumer, and must be updated regularly.
According to the Consumer Data Industry Association (a trade group representing the major credit bureaus), beginning July 1, public record data collected for credit reporting purposes including bankruptcies, civil judgments, and tax liens must contain minimum identifying information and be collected at more frequent intervals as follows:
- Minimum reporting of: (1) name, (2) address and (3) Social Security number and/or date of birth; and
- Minimum frequency of courthouse visits to obtain newly filed and updated public records of at least every 90 days.
Information about consumer bankruptcies already meets these standards so that’s unlikely to change. But most civil judgments and about half of all tax liens don’t, and will no longer be reported, according to the CDIA’s own analysis of currently reported judgments and liens.
To be clear, these changes will occur on consumer credit reports, but not business credit reports. If your business had a tax lien or judgment filed against it, that item may still appear on commercial credit reports and your business credit scores are unlikely to change. Unfortunately, they are among the types of information that can hurt your credit reports the longest.
How many business owners will be impacted?
According to credit scoring firm FICO’s research, roughly 12 million individual credit reports (that’s about 6-7%) will be affected by these changes. Most consumers will see their credit scores rise by less than 20 points, but a small percentage could see larger increases; or they could see a delayed impact, with their credit scores rising faster in the future with this type of negative information no longer appearing on their reports.
Nav’s research indicates the change could be even more impactful for small business owners. We’ve found that 17.5% of small business owners with a Nav account have either a civil judgment or a tax lien on their personal credit reports.
Because many business owners rely on personal credit to help fund their businesses—and because some small business loans involve a personal credit check—having these items removed from their credit reports could help them get the capital they need to grow their business.
One caveat: These debts don’t go away just because they no longer appear on credit reports. It’s still important to find a way to pay off or settle these debts, or the amount owed can continue to grow and you could even face garnished wages or seizure of your bank accounts in some situations.