Credit Reporting Firms To Omit Tax Liens From Consumer Reports

In a move that could make more than 5 million consumers very happy (and potential lenders very nervous), TransUnion, Equifax and Experian have announced they will be removing tax liens from Americans’ credit reports.

The three credit reporting firms said Thursday (March 22) that they will be deleting liens from 5.5 million consumer credit reports and will no longer be adding new tax lien information, according to news from The Wall Street Journal.

That means consumers who’ve missed a tax payment will no longer be penalized for that when applying for loans — which is good news for them, as this negative event could have held them back from accessing needed financing.

However, this credit score boost does have the potential to make some risky borrowers appear more creditworthy, creating what the WSJ called “a potential blind spot for risk.” Credit reports are there for a reason: to guide lenders as they determine which borrowers are likely to pay back loans and which ones aren’t.

Lenders will now have to take an extra step if they want insights on judgments such as tax liens. That information will only be available if they buy it from a third party or go through public records themselves to find it.

The move comes on the heels of class action lawsuits against credit reporting firms (although only TransUnion said the lawsuits had factored into its decision; Experian and Equifax said their decisions to do so were unrelated to legal action).

Allegations said the companies were not accurately updating tax lien information when the matter was resolved, meaning a consumer could appear to have outstanding debts even after paying up, thus making it difficult for customers who settled their liens to access financing.

TransUnion denied the allegations but said it would cease reporting tax lien and civil judgment public records for three years, while compensating any customers who were negatively impacted by inaccurate liens and judgments on their credit reports.