When Transunion, Equifax, and Experian PLC sent out information on credit scores in April, some risky credit applicants may have appeared more creditworthy than they really are. Thanks to a decision to remove tax liens from credit reports, potentially risky borrowers will have a better chance at getting approved for loans and other credit-based requests, including tenant applications. The move is intended to prevent a single negative event (failure to pay certain taxes) from preventing borrowers from accessing much-needed credit, and stems from ongoing legal struggles and class-action lawsuits between consumers and the three credit scoring firms.
While real estate investors (other than private and hard-money lenders, of course) may not be particularly concerned about whether individuals delinquent on their taxes can borrow money, anyone investing in rental properties certainly should be. “The removal of monetary civil judgments and tax liens from consumer credit reports by the three credit bureaus due to the NCAP agreement underscores why it is critical landlords and property managers request a separate, nationwide eviction records search,” said Sabrina Bower, president of consumer-initiated tenant screening provider and court data abstractor ApplyConnect.
“Alternate data, such as unlawful detainer records derived directly from court documents, provide a clearer picture of the applicant’s ability to pay their rent or mortgage payment,” she added.
LexisNexis Risk Solutions estimates that the removals will affect more than 5.5 million liens, and roughly as many borrowers. The three credit bureaus began removing public information about civil judgments and some tax liens last July as part of the National Consumer Assistance Program (NCAP). The bureaus first targeted reported judgments and liens on which the companies could not be entirely certain they were matching events to the correct people. This often happens when an event is reported but there is not enough personal information to determine if the event has been matched with the correct individual.
“The recently removed information from credit reports will affect various industries in different ways. For rental housing, it means a supplemental nationwide eviction report should be added to all credit reports when reviewing applicants.”
Sabrina Bower, President at ApplyConnect
The issue for landlords and rental property investors lies in the creation of a “blind spot” with the removal of those delinquencies, Bower noted. Since the information still exists in the public record, it will still be available, she said. “Moving forward, it will be the responsibility of requesting agents to use sources of information that include an eviction report, separate from the credit check, with unlawful detainer records.”
ApplyConnect is a Think Realty supplier offering consumer-initiated tenant screening to landlords and turnkey operators. Learn more about the benefits available from ApplyConnect to Think Realty members at thinkrealty.com/Supplier-Discounts.
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