Good News: Your FICO Credit Scores May Improve Soon. Here’s Why

Your credit scores might get a nice boost this summer due to changes in how the scores are calculated.

From Forbes:

As of July 1, the nation’s three credit reporting agencies will remove and exclude certain negative information from credit reports. Tax liens and civil debts will no longer be reported on credit reports if the negative information does not include a customer’s name, address and Social Security Number or date of birth.

About half of liens and nearly all civil judgments (96% of them) don’t meet those identification criteria, according to LexisNexis Risk Solutions, reports the LA Times.

Equifax, Experian and TransUnion – the three major credit reporting agencies in the US – use information from public records about tax liens, civil judgments, and bankruptcies when computing people’s credit scores. There’s a problem with this practice, though: often, there are mix-ups and errors, resulting in the wrong person’s credit score taking a hit.

One of the most common complaints to the Consumer Financial Protection Bureau (CFPB) is inaccurate information on credit reports. Fortune reports that since 2015, the three major credit-reporting firms have reached settlements with more than 30 states over practices including handling of errors. Since then, some information unrelated to loans, like gym memberships and traffic tickets, have been removed from credit reports. The firms also agreed to give people additional time to address outstanding medical debt.

In 2011 alone, 8 million complaints about wrong information in credit reports were received by the three major credit-reporting firms, according to the CFPB. A 2012 study by the Federal Trade Commission revealed that 21% of consumers had a verified error in their credit reports.

The new standards also require credit reporting agencies to update public record information in their files every 90 days.

FICO, the entity that created the credit score system, estimates that out of the roughly 200 million people who have credit scores, 12 million will see increases in their FICO scores as a result of this change. The vast majority — nearly 11 million — will see a rise of less than 20 points, and about 700,000 people will see a jump of 40 points or more, according to a FICO analysis, reports the LA Times.

The changes put the burden of proof on people or entities that file negative information on credit reports. This is great news for consumers.

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Contributed by Lily Dane of The Daily Sheeple.

Lily Dane is a staff writer for The Daily Sheeple. Her goal is to help people to “Wake the Flock Up!”