Are you looking to buy a home, but have a poor credit? We have good news for you: This July, credit reports are cleaning up big time and could help your current score.
We know lenders examine your credit score closely to see how well you’re paying off past debts. However, a Federal Trade Commission study found that 1 in 4 people find a mistake on their report. The primary areas found to be incorrect, are tax liens and civil judgements.
A tax lien is when you have not paid your taxes and a civil judgment means a court decided that you owe someone money. These two things make lenders question those with this found on their report. With that said, Eric J. Ellman, senior VP for public policy and legal affairs at Consumer Data Industry Association, there are as many as 50% of tax lien data that are incorrect and missing information. Other experts say civil judgments are not any better. Meaning there is a chance your score may not be entirely accurate.
Consumers can dispute mistakes on credit reports and eliminate the errors. The largest credit reporting bureaus, Experian, Equifax and TransUnion have decided to help in making sure these errors don’t hit your report to begin with. As of July 1, will not take into account tax lien and civil judgment records from your credit reports, if there is incomplete information.
The good news? If you were one of those who had bad credit due to civil judgments or tax liens with incomplete information, this could fall off your report and boost your credit score.
How much will this help credit scores?
About 12 million of 200 million Americans will see a rise in their scores. However, experts estimate that scores will increase by 20 points or less for 11 million of the 12 million.
Will this be of significance for your score?
This depend on the condition of your current score. If you’re looking at a 760-credit score or higher, you are in the higher percentile with great chances of qualifying for a loan. And if you’re looking at a credit score of 420, you’re looked at as a high-risk applicant and are not likely to make the cut.
Overall, those are close to meeting the qualifying credit score for buying a home, will benefit most. For example, if you’re score is at 570 and receive a 10-point increase in your score, because a civil judgment and/or tax lien was lifted from your score, you will have the minimum required score to qualify for an FHA Loan. However, keep in mind that these tax liens and civil judgments can be refiled with all the correct information and may affect your score once more.
In the end, if you happen to be one that is not effected positively with the changes in July, Consider keeping up with your credit score and take the necessary steps to raise your credit score.