Qualifying for a mortgage loan may have seemed out of reach if you’ve had a judgment or tax lien in the past that negatively impacts your credit rating. But a change in policy from the credit bureaus could mean a boost to your credit score — and it’s happening today.
What is the new policy from credit bureaus regarding tax liens and judgments?
Beginning July 1st the three credit bureaus – Equifax, Experian and TransUnion – will begin the process of removing tax liens and judgments from consumer credit reports. Historically, the data collection practices for these derogatory items have been rife with errors, leading to consumers having negative information incorrectly reported to their credit profile. Under the new policy, each entry must have an accurate name, date of birth, and social security number attached to it in order to remain valid. Additionally, judgments must be checked every 90 days for accuracy. Because millions of current entries are missing one or more pieces of this vital information, they’ll be dropped from the corresponding credit reports.
How many people can expect to be affected by these changes?
It is estimated that as many as 12 million individuals’ credit scores could go up as a result of the new policy. Just how much depends on your specific credit report. The vast majority of consumers impacted will see a jump of less than 20 points. However, experts from FICO expect about 1 million people to see their scores jump between 40 to 70 points — or more. and as many as 2 million people may experience a 20 to 40 point jump.
What are the implications for mortgage applicants?
While you’ll only benefit from these changes if you currently have a judgment or lien on your credit report, this can open the door to getting your mortgage application approved. Interest rates are typically determined by your credit score range, so even an increase on the lower end has the potential to qualify you for better terms on a new mortgage loan.
Getting tax liens and judgments removed from your credit report also lowers your debt-to income ratio, another criteria in the mortgage process. Since the judgment or lien amount counts toward your debt obligations, getting rid of these items can help you qualify for a higher loan amount. “The new rule from the credit bureaus concerning tax liens and judgments is huge for anyone hoping to achieve ownership,” said Carlyle Financial Managing Director Robert Cohan. “It’s definitely worth checking in with one of our mortgage bankers to see if your qualification status has changed, even if you just applied for a mortgage or refinance a few months ago.”
How can you find out if your credit report has been affected?
Judgments and tax liens are listed in the “Public Records” sections of your three credit reports. If you don’t already do so, you can access copies from each of the three credit bureaus for free once every 12 months through AnnualCreditReport.com. By entering in some personal information to verify your identity, you can instantaneously download your reports. To find out your credit score, you’ll need to purchase directly through FICO. While some websites offer free “educational” credit scores, they’re typically not from FICO. FICO is still the most popular scoring model used by most lenders in the country, and the free score can often vary greatly from the number your lender pulls.
“This new rule really expands our ability to qualify deserving borrowers in a responsible manner,” Cohan said.
Curious to find out if you’re ready to qualify for a new mortgage or refinance? Contact us to talk to one of our knowledgeable loan officers today.