When something really negative gets removed from your credit reports, you probably expect your credit scores to go up. Seems only fair, right? Turns out there may be several reasons why your scores may not rise after negative items are removed, as one reader’s question illustrates.
Bill recently shared his experience in the comments section of a story I wrote about a new IRS policy that will help people trying to get tax liens off their credit reports:
BAD NEWS EVERYONE: I just had 3, count them 3 BIG TAX LIENS removed (not released, removed) from my credit report. These liens totaled over $200,000.
My credit score went up ZERO points. None, nada, zip, nothing. However, on the same day I had a hard inquiry on my account because I applied for a credit card (a crime in this country I take it). For that infraction my score dropped 20 points.
The major tax liens expunged from my report – zero benefit.
1 hard inquiry – lost 20 points.
Why didn’t Bill’s score go up after the liens came off his credit reports? There are several possible explanations.
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It Takes Time
The first possible reason is an obvious one: a lien is still appearing on one of his credit reports. Steve Ely, the CEO of eCredable.com, says that “it takes time to flow through the system. The company placing the lien likely followed the traditional process of updating the credit file, which means it typically takes 30 days to have the lien removed from the file. ” He adds that a “second possibility, is that the lien was removed by one or two of the credit bureaus, but not all three. Even if one of the bureaus still has the lien on file, it will affect the credit score created from that particular credit bureau.”
Since Bill stated that the liens had been removed in his comment, though, we’ll assume that this explanation doesn’t apply here, and look for another reason.
In FICO’s scoring algorithm, consumers are grouped into smaller models referred to as “scorecards.” While the criteria for the individual scorecards aren’t public information, there is likely one or more scorecards that include consumers whose files list seriously derogative information such as tax liens. When that negative information is removed, the consumer’s information may then be grouped with another scorecard. That may mean Bill’s credit data is now being compared to another group of consumers.
Credit.com credit scoring expert Tom Quinn notes that while this is a possibility, it would be unusual for a consumer to move from one scorecard to another and not see a resulting change in their credit scores. Bill said his scores stayed exactly the same when the liens were removed.
So let’s keep looking.
Timing is Everything
If the tax liens were on his reports for years before they were removed, they may have had limited impact on the credit scores before they were deleted, suggests Quinn. Generally, recent information has a greater impact on credit scores than old information.
I asked Bill what other credit references he has at this point and he told me there is nothing else on his credit reports except a paid off car loan.
Bingo! The fact that Bill hasn’t used credit recently probably is as much to blame here as anything. It’s an important lesson: Even if you’ve been through difficult credit problems, it’s important to establish current, positive credit references that can boost your credit scores over time. I suggested that Bill start with a secured credit card so he can build the credit reference he needs. Once he has one under his belt for 6 to 12 months, he should be in a much better position to get an unsecured card.
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This timing theory gets additional credibility from a comment posted by another reader in response to Bills. A reader named Dave wrote:
I just had a Fed Tax Lien removed, and I gained an average of 118 points on my FICO. My lien was less than a year old though, so I guess perhaps the time since the lien might have been a factor…
If It’s There It Counts
There’s one more point worth noting about Bill’s credit situation. “The amount of the lien has nothing to do when calculating the credit score. The liens could total $1 or $1 million, and it makes no difference. The score is affected by the presence of one or more liens, not the amount of the lien,” says Ely. Quinn concurs: “Generally speaking, the dollar amount of the tax liens have little to no impact on the score.”
Has something seriously negative – bankruptcy, repossession, foreclosure, or lien, for example – recently been removed from your credit reports? What happened to your credit scores? Share your experience below.
Image: InstantVantage, via Flickr