Homebuyers that have been struggling to raise their credit score enough to qualify for a mortgage may be in luck. Major credit reporting firms have overhauled how they handle reporting negative credit information, and this change is resulting in millions of consumers experiencing a boost in their credit score.
The credit boost is a result of a 2015 settlement between 31 state attorneys general and Experian, Equifax, and TransUnion. Together, they created the National Consumer Assistance Plan which went into effect in the second half of 2017. The plan was designed to limit credit reporting errors that negatively impact scores.
Under a new agreement with state regulators, non-loan items that went to collection firms -- such as old gym memberships or traffic tickets -- will be removed from consumers’ files.
It was reported by a recent New York Federal Reserve study that consumers who had at least one collections account erased from their files saw an average gain of 11 percent in their credit scores. The report found that the number of people with a collections account on their credit report dropped from 33 million to 25 million between June 2017 and June 2018. The report was based on a sample of millions of anonymous credit reports from credit reporting firm Equifax.
The report found that the population that was impacted by the change had lower credit scores to begin with. One third had a delinquency of some kind in their credit accounts compared to 8 percent of everyone else.In addition to the average 11 point increase in credit score, the study found that eighteen percent of the sample saw gains of at least 30 points, but those who saw bigger boosts typically still had bad credit afterwards.
“These borrowers will certainly benefit in the long run from the cleanup of their credit reports, since higher scores are associated with better access to credit, to the job market, and even to the rental housing market,” the New York Fed said.
“But the immediate impact of the removal of collections will be muted if the beneficiary’s credit record continues to be tarnished with other negative information.”
Lauren Bunting is an Associate Broker with Bunting Realty, Inc. in Berlin, MD.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
