Taming the credit bureaus

 Credit Scoring  Comments Off on Taming the credit bureaus
Jul 092015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

An FTC study in 2012 found that one in four consumers probably has mistakes on their credit reports. Based on my experience, I suspect the ratio is higher. Errors can range from duplicated accounts to closed accounts still reporting a payment to incorrectly reported collections.

In order to comply with federal law, the credit bureaus provide a process by which consumers can dispute errors, and consumers used that process 8 million times in 2011. The problem is the process has been described as a “merry-go-round of frustration.” Instead of investigating disputes, the bureaus typically rely on automated systems that result in creditors simply verifying that the report matches what’s in their system, which it should because the creditor provided the erroneous information in the first place. Any information or documentation provided with the dispute tends to be ignored.

With any luck, that may be changing. Regulators recently required bureaus to update their dispute systems to allow consumers to file them online with supporting documentation. They also have required the bureaus to submit reports to identify which creditors have the greatest number of disputes. While the latter doesn’t make the dispute process any easier, it may give regulators insights into how and why inaccurate information persists on consumer credit reports.

Recent settlement agreements with 32 state attorneys general may have the greatest effect, and we’ll discuss that next time.

Bill to remove medical collections will help homebuyers

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Jun 032015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Congress is considering a bill, the Medical Debt Relief Act, that could be a boon to thousands of homebuyers. The bill would require credit bureaus to remove medical debt from a person’s credit report within 45 days of the debt being settled or paid.

The legislation addresses a breakdown in our health insurance system that allows creditors to ding patient’s credit reports when a medical claim isn’t handled correctly or in a timely manner. Patients are responsible for what insurance doesn’t pay, and I’ve seen many cases where patients didn’t realize there was a residual balance on a bill. Medical providers understandably want to get paid, and their recourse is to file a collection action. Unfortunately for the patient, this action could ruin an otherwise pristine credit score and result in thousands of dollars of extra interest when they apply for a loan.

Congress has tried to pass similar legislation a number of times in the past, so passage isn’t guaranteed. However, numerous consumer and industry groups have endorsed this bipartisan bill, which may give it a chance this time.

Recovering from damaged credit – Part 2

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Apr 162015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Yesterday, we discussed the need to reestablish lines of credit after financial hardship. You may have a tough time getting a major bank credit card with damaged credit, but there are other options.

If you have some savings, consider a secured credit card. This is a major credit card, like Visa or MasterCard, with the credit limit typically limited to the amount of your savings. That’s fine because the credit limit isn’t terribly important. What is important is that you use the card at least occasionally and keep the balance paid on time.

If you’re planning an appliance or furniture purchase, ask if the store has a credit program. Typically, these loans allow you to pay off the purchase over a fixed term.

If you need a car, a number of creditors specialize in car loans to folks with damaged credit.

Finally, even if you can’t get a major credit card, you might qualify for a department store or gas company credit card.

To qualify you for a mortgage, I want to see at least two or three accounts that have been active for at least 12 months.

And, here’s the most important advice I can give you. Make all your payments on time if you want your credit scores to improve.

Recovering from damaged credit

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Apr 152015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

You don’t have to let financial hardship define your credit future. Too often, I see folks who experience a bankruptcy, foreclosure, or just financial hard times give up on credit because the hardship trashes their credit scores. I will grant you that it can be difficult to qualify for a home purchase after one of these credit disasters, but if you’re proactive, you can qualify in only a couple years.

First, understand that the bad credit isn’t going to magically disappear. Yes, there are companies that specialize in cleaning up bad credit for a fee, but they can’t make legitimate negative information go away. If you’ve experienced a bankruptcy or foreclosure, it’s improbable anyone can unring that bell.

Instead of trying to rewrite history, your job is to offset the bad credit with good credit. To that end, it’s important that you reestablish lines of credit. You may have a tough time getting a major bank credit card, but there are other options.

We’ll discuss those in tomorrow’s Star Bits.

Getting spanked for paying your bills

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Feb 262015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Before you use your tax refund to pay down your credit cards, here’s something to consider. Your financially responsible action just might hurt your financial situation.

I’ve seen this happen before, and it’s really frustrating. You’ve been carrying a large credit card balance, slowly paying it down, padding the bank’s pocket with your interest payments. You get a nice tax refund and decide to be financially responsible. You use it to pay off half the card balance, thinking it will boost your credit score. Instead, you get a letter from the bank saying they’ve cut your credit limit to just a couple hundred dollars more than your new balance. You’ve done nothing for your credit score because the card still appears to be maxed out, and you’ve lost spending power. What a deal!

So, what can you do? You can try to contact the bank and explain why your financial situation has improved. It may reinstate the limit. It might raise it, but it probably will do nothing.

The Credit Mulligan Bill

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Oct 172014
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Many of us have experienced the frustration of trying to correct errors on our credit reports. Rep Maxine Waters thinks she has a solution. Let’s talk a look at her bill she says will protect consumers from errors on their credit reports.

Some of the highlights are:

– reduce to 3 years the length of time derogatory information can remain on the credit report;
– remove derogatory information that resulted from consumers taking out mortgagess they couldn’t afford;
– remove debts that have been paid off or settled; and
– remove derogatory information related to private student loans if the consumer has made two on-time payments in a row.

Now, I’m no big fan of the credit reporting agencies, but this proposal is just silly. We should call it the “Credit Mulligan Bill.” If you screw up your credit, you simply ask for a do-over.

If something like this passes, interest rates will rise. Creditors will not be able to identify those with poor credit habits, and those with good credit will subsidize the bad behavior.

A more reasonable step towards reforming credit scoring would be for Fannie Mae and Freddie Mac to adopt the new credit scoring models that we discussed a couple weeks ago.

Do improved credit score models matter?

 Credit Scoring  Comments Off on Do improved credit score models matter?
Sep 272014
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

FICO, the company that owns the most widely used credit score, recently announced some changes to its scoring model to more accurately predict credit worthiness. This is good news because from a lender’s perspective, I want a credit score to represent the most accurate estimate of a borrower’s credit health. It appears the changes really could help folks who use credit sparingly or who have medical collections.

Unfortunately, mortgage lenders can’t use the new model until Fannie Mae and Freddie Mac adopt it. Fannie and Freddie acknowledged last week that they will study the new FICO model as well as the Vantage Score model, which some claim also would allow more folks to qualify for credit. Unfortunately, Fannie says this study will take some time to complete as it claims switching to a new model requires extensive testing and comes with substantial costs. So, despite the promise of study, I wouldn’t look a change any time soon.