In case you haven't heard, the big 3 consumer credit bureaus are changing their ways. Experian, Equifax and Transunion have announced that they are changing the parameters pertaining to how civil judgments and tax liens will get added to your credit file. While most people won't see any change at all, for small business owners who sometimes stumble over the hurdles of old civil liens and judgments in their personal credit, this new change in policy may have a staggering impact on their ability to achieve new credit... and we mean that in a GOOD way!
For anyone who has a lien or judgment on their personal credit that has been holding them back, you know how difficult it can be, especially if your business is young or has an incomplete corporate credit file of its own. While no one wants to be forced to link their business to their personal credit, some lenders are wary if they aren't able to gain a full picture of a company's creditworthiness by checking the D&B file. In some cases, a check of the personal credit file may be required, and if there are old liens or judgments present, it can hold you back. But as of July 2017, all three bureaus, Experian, Equifax and Transunion are tightening their standards. There are four pieces of information associated to a civil lien or judgement: a name, an address, and either a birth date or Social Security number. In the past, any piece of identifying information provided to the bureaus was enough to link you to the item in question. But, beginning this month, all three bureaus will require at least three of those four data points to be present. Since many of the entries that are submitted lack the required data points, the credit reporting agencies are no longer going to present the entry in the credit file.
Since liens and judgments are considered negative events that can impact your credit report, simply removing these negatives may cause a slight increase in your personal credit scores. And while the bureaus are quick to point out that only 6-7% of those with scores will be affected by this change in policy, if you are one of the 12-15 million people impacted, you could benefit significantly from an estimated 20 point improvement. That alone can make a huge difference to those who are forced to supplement their business credit applications with personal credit information. No two credit files will be influenced to the same degree, since the type of lien, amount and age all factor into the impact, but a change of just a few points can sometimes mean the difference between a welcome approval or a dreaded denial. Remember, the goal is always to separate your corporate credit from your consumer credit, and you should always strive for that end. If you are carrying corporate debt on your personal credit cards or in your personal name, the weight of that debt needs to be transferred to the business, where it belongs. By achieving credit in the business name and transferring that debt where it should be, you will be relieving your personal credit report of an unnecessary burden that is weighing down your scores. By decreasing the weight on your scores, you will see welcome improvement. If you have any questions, please feel free to give me a call so we can go over your specific issues.