New Credit Report Changes
What You Need to Know to Reduce Risks
On July 1, 2017
A little-known policy change was implemented by Experian®, Equifax®, and TransUnion® as a part of the National Consumer Assistance Plan (NCAP), greatly affecting how the bureaus report Public Record data.
The bureaus will stop collecting and reporting a high number of civil judgements and tax lien data on millions of public records. This will result in a major shift for landlords, mortgage lenders, or anyone who uses credit reports in their evaluation and assessment of potential customers.
Civil judgements and tax liens are extremely important when determining the risk level of an applicant. Civil judgements are ordered by courts in legal disputes, including evictions, typically resulting in monetary damages. Tax liens are levied when owners are delinquent on tax payments and are normally levied against a property.
These two factors are considered red flags to landlords, mortgage lenders and those who use credit report data to make decisions. They often carry more weight than the overall credit score. According to FICO, the impact of a tax lien on a credit report is "quite serious."
Borrowers with a civil judgment or a tax lien are 5.5 times more likely to end up in serious default or foreclosure.
In the past, civil judgements and tax liens remained in credit files for a long time, for good reason. This data helps landlords, mortgage lenders and others weed out high risk applicants. Beginning July 1, 2017, new and existing public record data must meet minimum data standards, service levels and timely updating to appear on a consumer credit report. The data must contain the consumer name, address, date of birth and/or social security number.
Additionally, courthouse visits must occur minimally every 90 days to receive filed and updated public records. This change will result in an extreme amount of data being dropped from consumer credit reports.
Sandy Anderson, Senior Vice President of Client Operations at Experian®, said in a letter dated June 24, 2016, "We anticipate significant change to civil judgment public record data as preliminary analysis shows approximately 96% of this data may not meet the enhanced PII requirements. It is very likely that civil judgment public record data will not be part of Experian’s core consumer credit database after July 2017."
This means that applicant eviction searches will no longer be available through previous methods.
Applicant eviction searches will no longer be available through previous methods leading to inflated scores.
Without key information, the credit bureaus simply will no longer report much of the data property managers and owners have come to rely on. Eviction data is a key indicator that will now be missing from credit reports. Without this data, many consumers will have artificially inflated credit scores which could make it much harder to get an accurate history.
An internal study by LexisNexis Risk Solutions indicates that "borrowers with a civil judgment or a tax lien are 5.5 times more likely to end up in serious default or foreclosure." Property managers and owners know that default often leads to bad debt and evictions, which are expensive. The costs add up quickly. In Texas, there were 225,000 eviction cases filed from September 2014 to August 2015, resulting in 69,000 judgements and over $55 million in lost rent.
Where did those 69,000 people move?
Without the proper data, no one would know. The good news is, eviction data will still be available through third party suppliers like ApproveShield® who will become the primary providers of eviction, tax lien and civil judgement data. ApproveShield® is a credit reporting agency and contributory database for property managers that minimizes the risk of skips and evictions, and decreases crime in multifamily communities.
Eviction data will still be available through third party companies like ApproveShield®
Third party companies often provide more up to date information over credit reports. Eviction filings and rulings can often take 30-45 days to show up on the reports. For example, ApproveShield® can discover evictions that have been filed on potential renters as quickly as the day after an eviction is filed at any Dallas County Court. While third party companies add an additional step to the qualification, not having this crucial data increases the risk of losses exponentially. Property managers and owners need to be aware of the changes so they can change their processes as quickly as possible.