Tax liens removed from credit reports may mean some consumers will see a jump in credit scores.
Tax liens will no longer count against your credit scores. Starting April 16, tax liens will be removed from consumer credit reports. As a result, some consumers can look forward to higher credit scores.
The move to no longer count tax liens in credit scores began last year when the three main credit bureaus, Experian, Transunion and Equifax, made a decision to remove most tax liens and civil judgments from consumer credit files effective July 1, 2017.
When tax liens were removed last year, it only addressed about half of consumers with tax liens. While most civil judgments were removed.
Now, an estimated 5.5 million tax liens will be removed from consumer credit reports.
LexisNexis Risk Solutions estimates once tax liens are stripped from credit score calculations, people affected by the changes could see a 30-point jump in scores. LexisNexis also provides lenders with data to make decisions on consumer loans.
What tax liens removed from credit reports means to consumers
FICO, the largest and most widely used credit scoring company, calculates most credit scores from on a range from 300 to 850.
Credit scores contain several factors that arrive at the 3-digit number. A good credit score is typically 700 and above, while a scores over 760 are considered exceptional.
Here’s how FICO breaks down credit score ranges:
- 800 + is considered exceptional
- 740 to 799 is a very good score
- 670 to 739 is considered a good score
- 580 to 669 is a fair credit score
- 579 and lower is a poor credit score
For consumers with tax liens or civil judgments whose credit scores are teetering around average, tax liens removed from credit reports may mean a boost into the “good credit score” club.
Why is my credit score important and what’s a good score?
If you don’t think that your credit scores are important enough to save you money, think again. The interest rate you can expect to pay for a mortgage loan is dependent on these scores.
Even the difference between a credit score of 670 (average score) and 700 (good score) can often be tens of thousands of dollars over the life of your loan.
The higher your scores the less you can expect to pay for your loan. For example, a person whose credit score is 670 would pay more on a 30-year mortgage loan than a person with a 700 credit score. For example:
That’s a $30 a month difference. Doesn’t sound like a big deal…but wait. Multiply that by 360 months (30-year fixed rate mortgage) and that adds up to $10,800!
A low score can cost you money each month.
Credit scores play a significant role in Americans’ daily life even when you’re not purchasing a home.
What you pay to borrow money determines your bottom line if you use credit cards, car loans, personal or student loans to function in your daily life.
As a result of the new changes millions of consumers may be considered creditworthy to lenders in addition to making life easier in terms of renting an apartment, turning on basic utilities, getting approved for a bank account and even seeking employment. What lenders and creditors think of your credit scores can make all the difference in the amount of money you save.
April 16, 2018 is the date Experian, Transunion and Equifax will cease reporting tax lien data and all tax liens will be removed from consumer credit reports, according to this public records announcement.
How can I check my credit score for free?
Remember, you can always get a free non-FICO credit score and check your Equifax and Transunion credit reports from CreditKarma in addition to getting a free credit report (without credit scores) at annualcreditreport.com.
The bottom line is that having a good score can save you money throughout your life. If you have tax liens pull your credit next month to make sure any tax liens have been removed from your credit reports.
Some times you have to dispute outdated information or information no longer allowed on credit reports. Don't assume the credit bureaus will automatically do the job.