Your credit score could jump in July, but it's no cure-all

Ever struggle with trying to boost your credit score? Well, millions of consumers won't have to do anything but wake up to a higher credit score sometime in July.  

Voila! You've just added 10, 20 or 40 points.

But wait before you get too excited and decide that now is the time to shop for a mortgage or a car loan. The instant upgrade only applies to a select group of consumers — not the vast majority of us. And not everyone with bad marks will see their mistakes disappear. 

"The knee-jerk reaction is that this is a great thing for consumers. That's not necessarily true," said John Ulzheimer, a credit expert who formerly worked for credit-scoring company FICO and credit bureau Equifax.

Beginning in July, the three national credit bureaus — Equifax, Experian and TransUnion — will no longer collect and put on credit reports public records on most civil judgments, such as money you owe because of a lawsuit, and many unpaid state and federal tax liens.

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Foreclosures and bankruptcies are not part of the change. 

During the week of July 10, the credit reporting agencies will remove information that does not meet new minimum standards for identifying the consumer. 

Roughly 12 million consumers nationwide will get an artificial bump in their FICO credit score. For most of those consumers, though, the score increase will be fewer than 20 points, according to FICO. That's because many of these consumers have other negative information, such as serious delinquencies or debt collections, on their files, and that information will remain. 

The national average credit score hit 700 as of April, which indicates good credit and is 10 points above where it was before the last recession, according to FICO.

The majority of boosts relating to reporting changes are likely to take place for higher-risk consumers who are in the 350-600 range for credit scores, according to research by VantageScore. A small bump won't necessarily move someone out of the subprime borrowing category. 

Yet on the margin, it is possible that a boost of up to 40 points could help some borrowers. 

Credit reports and scores, of course, are used to determine the interest rate consumers receive on car loans, mortgages and credit cards. The lower the credit score, the higher the interest rate.

Credit scores also can be part of the financial lives of consumers when they're renting an apartment, signing up for a cell phone plan or trying to sign up for utility services and even buying insurance in many states.

What's good here is that some people have complained for years about having trouble removing inaccurate data from their credit reports. So now, consumers could see fewer cases in which someone else's tax lien ends up on their credit report. 

Some public records don't accurately reflect who owed the debt because the names on some files were mixed up and some Social Security numbers were omitted. 

Consumer advocates have been pushing for years for more steps to ensure the accuracy of what's listed in credit reports. In July 2012, for example, the Consumer Financial Protection Bureau held a town hall meeting in Detroit to put the spotlight on credit reporting agencies. An initial agreement involving reporting changes was reached in 2015 by the three credit bureaus and 31 state attorneys general, including the one from Michigan. 

Medical debt that's less than six months old will not be reported as of Sept. 1. 

But as some buzz is building, it's essential to understand that some bad marks will remain on your report. 

Ulzheimer said the information relating to tax liens and civil judgments can remain on credit reports as long as the citation includes the person's name, address and either the date of birth or the Social Security number. It's expected that about 40%-50% of tax liens will remain on credit reports. 

"Because civil judgments don’t adhere to the enhanced standards, they will be removed from consumer credit reports," according to the Consumer Data Industry Association, a trade group representing credit reporting agencies. Some estimate that only about 4% of civil judgments might remain on reports. 

How will you know if a tax lien or judgment was dropped from your credit report?

No one is going to send you a notice. You'll have to check your credit report. See www.annualcreditreport.com. Or call 877-322-8228.

It continues to be important to dispute errors on your credit report. But if you actually had a tax lien that remains on a report, it's not an error. See www.ftc.gov/credit. 

You won't be able to file a complaint if a legitimate judgment or lien is listed. "This isn't an amendment to the Fair Credit Reporting Act," Ulzheimer said. "This is just a voluntary action the bureaus are taking." 

Consumers with complaints regarding credit reporting companies can file them with the Consumer Financial Protection Bureau at www.consumerfinance.gov/complaint. 

Don't think that borrowing will automatically get easier, either. 

"It's not as if, it's not on a credit report so all your problems are over," Ulzheimer said. "Don't fall into the trap of thinking you don't have to address the issues of your tax lien or your judgment." 

Brian Riley, director of the credit advisory service for payments consulting firm Mercator Advisory Group in Maynard, Mass., said the expectation in the industry is that mortgage lenders and others will conduct due diligence in the future by turning to alternative methods for determining a consumer's creditworthiness, including finding some information elsewhere, such as in LexisNexis reports. 

LexisNexis Risk Solutions announced in May that it has a new report that will address some of the latest challenges faced by lenders, who could be dealing with a "blind spot" when some data is removed from credit reports. 

LexisNexis Risk Solutions estimated that about 11% of U.S. consumers have a tax lien or civil judgment on file. On average, removing such data could add about 10 points to a credit score. But FICO estimated that as many as 700,000 consumers could see their scores rise by at least 40 points after the change. 

In general, a score of 760 or higher is viewed as excellent, while a score in the 720-759 range is very good. Consumers in the 680-719 range are considered good and acceptable borrowers. Below 680 is viewed as being in varying degrees of poor to subprime. 

VantageScore 4.0 will roll out this fall to try to fill the gaps, as well, to offer predictive performance information. The new scoring model takes into account limits on reporting tax liens and judgments.

Bob Walters, president and chief operating officer of Detroit-based Quicken Loans, said Quicken has no plans to conduct any additional research, though. He said Fannie Mae and Freddie Mac — the two biggest sources of mortgage financing in the country — have given lenders guidance indicating that no extra steps need to be taken in light of the changes to credit reports. 

Overall, the impact to credit scores is likely to be minimal for most consumers, Walters said. 

Yet Riley predicted that some mortgage and other lenders will no doubt dig deeper for such information and other clues relating to creditworthiness. 

"It's going to be there somewhere," Riley said. "If it went to judgment, you probably have other issues, too." 

Contact Susan Tompor: stompor@freepress.com or 313-222-8876. Follow her on Twitter @Tompor.