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Dropping Tax Lien Data and the Effect on Loans

Change is inevitable. However, at times, change can also bring plenty of uncertainty. A change to the way the three major credit bureaus calculate consumer information may have the possibility of leading to bad loans.

Three major credit bureaus will be doing away with the tax lien data when calculating credit scores. Some experts say that this could lead to a falsely high credit score for individuals who may not necessarily be able to repay their loans.

“We feel the data, when accurately linked to the consumer, is important,” said Ankush Tewari, senior director of credit risk assessment at LexisNexis Risk Solutions, a provider of public record data, according to National Mortgage News.

“It is important for lenders to know, for example, if a consumer has a $50,000 tax lien that they have an obligation to repay before issuing them new credit. So if you’re an auto lender and you’re considering giving this consumer a loan for a $35,000 automobile, it’s important for the lender to be aware that the consumer also has this other lien obligation that they’re also paying off.”

According to an infographic from the Consumer Financial Protection Bureau, 75% of folks who has some public records data removed from their credit reports remained in the same score band.

"That change and the next step of purging the remaining tax lien data are a result of settlement agreements between the bureaus and 31 state attorneys general, which said that as of July 1, 2017, public record data given to the credit bureaus had to contain name, address, and Social Security number and/or date of birth, and had to be refreshed at least every 90 days," according to the NMN report.

Unfortunately there is no substantial data that points to consumers getting loans now based on the removal of tax lien data. For more on the removal of the tax lien and the possible effects on consumer credit scores and loan approvals, click on the image above.

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