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Why are tax liens being removed from credit reports?

A Consumer Financial Protection Bureau (CFPB) study found that incorrect information on credit reports was a top consumer complaint. To fix this, the bureau implemented new rules.

Only tax liens with certain identifying information – consumer’s name, address and date of birth and/or Social Security number – can be included. Many, if not most, liens did not have this information. The practical effect was that the largest three credit reporting companies began removing tax lien data last summer (reportedly about 50 percent). In mid-April, they removed the remainder from consumer credit reports.

Higher credit score?

If you routinely check your credit score or were notified of a recent increase in your score, it could be related to this change. After the changes started last summer, the CFPB noted that for only a few consumers was this enough to improve their overall credit score.

But other analysts suggest this recent change could affect as many as 11 percent of consumers, boosting credit scores up to 30 points.

Why does your credit score matter?

If you have recently sought financing for a major purchase, you probably have an idea of your current credit score. This number impacts everything from offered interest rate to overall ability to get a loan.

A good score is generally 700 or higher. And while a tax lien will no longer show up, the circumstances that led to a lien (high debt to income or late payments) could be dragging down your score anyway.

How can you increase it?

Making payments on time is probably one of the most important. Late payments are reported and they will lower your score. Using a high amount of available credit is also frowned upon. A good rule of thumb is limit this to 30 percent of less. Paying down debt will also improve your score.

However, tax liens are public records and the first step toward a levy of property. Get out from under a lien before the IRS begins to seize bank accounts or garnish earnings.

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