tax liens are being removed from credit reportsIt can be a bit mystifying to the average person when deciphering which information goes in their credit reports and which does not. One detrimental piece of information will soon be completely removed from all credit reports compiled by the three main credit bureaus, which could have a positive impact on your credit. The data in question is tax liens, which can show up in the public records section of your credit reports. These are issued as part of a judgement against you on behalf of the government if you miss a tax payment. To learn why this information is being removed from credit reports, who it will impact and how their credit will change, keep reading.

Why are tax liens being removed from credit reports?

This decision comes on the heels of a move last July by the credit reporting agencies to remove all civil judgments and nearly half of tax lien data from people’s credit reports. The reasoning behind these changes stems from research published by the Consumer Financial Protection Bureau that indicated incorrect identifying information (e.g., your name) can link tax liens to the wrong person. This can lead to lower credit scores and a difficult time on the behalf of the wrongly implicated person, who has to work on untangling the errors in their credit reports in order to get their credit back in good standing.

Who does this impact and are their credit scores guaranteed to improve?

Approximately 5.5 million credit reports are expected to be impacted by the move to erase tax liens. Data provided by LexisNexis Risk Solutions indicates that some people could see their credit scores improve by up to 30 points; however, that won’t be the case for everyone. Those with stronger credit are likely to see less of an impact than those with weaker credit. We can look to the CFPB’s report containing the results of last year’s removal of civil judgments and some tax liens for an idea how this might play out:

  • 75% of impacted people’s credit scores remained within the same range
  • 17% saw their credit scores move to a higher credit range (e.g., fair to good)
  • 6% moved to “prime” or above (e.g., good to excellent)
  • 66% stayed in subprime or deep subprime (e.g., poor to average)

Ultimately, as this is just one piece of the larger credit reporting puzzle, it’s not going to be a make-it-or-break-it for most people’s credit scores. That said, it’s overall a good thing that the credit reporting agencies are revising their standards, especially in light of how many credit reporting errors have plagued consumers over the years. If you aren’t sure whether this or any other information could be bringing down your credit scores, it’s a good idea to check your credit reports. Learn how by following our guide.