Consumer Finance

PYMNTS Daily Data Dive: A New Credit Risk Model?

Credit Risk and Credit Score Swings

Could tax liens and judgments soon be excluded from credit risk calculations? Both have an impact on people’s credit scores, making it harder for some people to access credit. But tax-lien and civil-judgment data are used to measure credit risk because they are highly predictive of default, according to VantageScore.

VantageScore removed all tax liens and civil judgments from a random sample of credit files from 4 million consumers in an analysis. The results showed that the predictive accuracy of the new credit risk model dropped “only minimally.” The majority of changes were seen in the credit profiles of consumers with scores in the lower ranges. Equifax, Experian and Equifax, under a program called the National Consumer Assistance Plan (NCAP), are considering decreasing the number of tax liens and public record judgments included on credit profiles.

Here are the data

350 to 360 | The consumer score range that saw the majority of changes

+11 | The average change in points in credit scores

10% | The percentage improvement in credit scores from the absence of liens/judgments

11% | The percentage of sample population credit files affected by existing tax liens and civil judgments

8% | The percentage of the population that saw a change in their credit score following the removal of all liens and judgements

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