Which is worse: Late Payment, Collection, or Tax Lien?

Which account will dock more points from your credit score and hurt you the most when applying for a home loan?

A) 30-day late payment on 5/2019 for $10 with Target

B) $249 unpaid collection on 9/2014 with Verizon Wireless

C) $5,000 tax lien on 1/2010 with the IRS

If you said (C) the tax lien because it’s the largest and most serious, I can’t blame you, but that is incorrect.

If you said (B) the collection, that is also incorrect.

It is the little $10 late payment that will dock the most points from your credit report, because it is the most recent derogatory account.

It is not the dollar amount but the “Date of Last Activity” that carries the most weight for credit scoring.

Also surprising to many, that little Target late payment will be your biggest hurdle to cross when applying for a home loan. Why?

Because it just happened! Underwriting wants to know why you aren’t able to make a small payment, why you aren’t managing your finances– especially if there are several late payments within the past 12 months. This little late payment will cause you to pay a higher monthly mortgage insurance fee for having a lower score, too.

As for (B) the $249 collection, that can be ignored. It’s five years old and it’s under $250. (FHA is even more generous and ignores under $2,000.) Mortgage underwriters will not regard it as long as your credit score qualifies.

As for (C) the tax lien, if you are in a repayment plan with the IRS and are making monthly payments, that payment will be included in your debt ratio just like a car payment or any other payment. It will not stop you from becoming a home owner.

It’s Not Fair!

If you “decide to do the right thing” and pay off the $249 collection, your score will suddenly drop.

This is because you have “updated the date of last activity” from five years ago to today.

It doesn’t make sense, and it’s not fair, but that is the way the FICO score has been set up. It is essential to know the “credit score rules” so that you can win at the game. When you know how credit scoring works, you are literally in control of your own score.

If you’ve got credit challenges, don’t wait to pick up a copy of Repair Your Credit Like the Pros here. So many good people have improved their credit and you can, too!

Jerrid wrote: “Not only did Bank of America remove this account from my credit reports, but the end result allowed for my credit score to go up 65 points.”

Daisy Bishop wrote: “As someone who has read over 100 purely informative books I can honestly say this book was hands down the most useful, valuable information I have ever read.”

Kara Sutherland wrote: ” I myself have seen a 100 point increase in THREE months.”

Can You Use Bonus, Commission, and Tip Income to Qualify for a Home Loan?

Do you receive commissions, a bonus, or tips as part of your income? If so, here is important information.

With variable income, lenders are looking for stability. They want to see you consistently receive this extra income and that it hasn’t taken a nose-dive this year compared to last year (without a very good reason).

Here are specifics:


You must receive bonus income for 24 months to include it on your loan application. The same applies to restricted stock (RSU) income. Future bonuses do not count; it’s based on the average over the past two years.


If commissions make up 25 percent or more of your income, then you need to submit two years’ tax returns in addition to your W2s and paystubs. Why? To see if you deduct a lot of your income with required expenses.

A two-year history of receiving commissions is preferred, but one year can be accepted with make-sense circumstances. It’s an individual underwriter decision, so best to speak with your mortgage broker who knows all the underwriters (and who is most common sense oriented).


Tip income can be included as long as it is verified. You’ll need to show the tip income on paystubs and W2s. The lender will most likely ask your employer to fill out a Verification of Employment form to confirm.

You cannot hide cash tips, pay no taxes on the income, and then suddenly declare it on your loan application. The income you state to the IRS needs to match the income you state to your loan officer.

Your experienced loan officer will help you calculate and determine your income for qualifying to buy a home. If you are in California or Washington, I am state-licensed and happy to help. (NMLS License # 1284134)

Beware of Incorrect Mortgage Information

This recent headline published by a mainstream and well-known media source is false.

There is NO loan that allows the seller to assist with the buyer’s down payment.

(Not allowed on conventional, FHA, VA, USDA, or non-prime loans.)

The down payment may come from the buyer, as gift money from a close family member, or from an acceptable down payment assistance program.

The seller is allowed to pay for closing costs only, never down payment on the loan.

When you are researching information on home buying and getting a mortgage, don’t believe everything you read online. There is a lot of incorrect information out there.

Article writers who have not worked in the mortgage industry are not good sources of information.

And to make a bad situation worse, articles like this get passed around, copied, and then when people see it multiple times, they believe it.

Be smart: get your information straight from your mortgage broker. That way, you will know it is true and accurate.


How to Shop for a Mortgage Without Getting Hit for Multiple Credit Inquiries

pexels-photo-1586525This is my best tip for shopping 30 or more mortgage lenders with only one inquiry and one phone call.

A big concern people have when they’re getting pre-approved for a home loan is, “How do I shop for the best rate without having multiple inquiries on my credit report?”

What the Big 3 Credit Reporting Agencies (Credit Bureaus) Say

Experian says consumers have 15 days to shop for a mortgage without having their credit score penalized.

Equifax and TransUnion say consumers have 45 days.

If this is true, why have some people seen their scores drop when their credit is pulled twice or more during that window?

According to National Credit Care, the window shopping idea is all nonsense. They say that they do see people’s scores go down, and that it is because lenders use the Classic 04 model, not NexGen that was created in 1997 and nobody uses.

Why Having Lots of Inquiries is Bad

  • If you have a borderline credit score, you don’t want to risk seeing your score drop.
  • If you have credit challenges and an underwriter sees that you have applied with six other lenders, the underwriter thinks, “None of my colleagues at other companies are approving this loan; why should I be the sucker who approves it?”

Best Tip for Rate Shopping Without Taking a Credit “Hit”WA First Awards 2018

A mortgage broker can shop 30 or more lenders (wholesale!) with only one credit pull. Not only do you avoid multiple inquiries, but you get to have a professional who knows all the underwriters do the shopping for you. It’s like having a free personal shopper!

Additionally, why walk into a retail bank or lender office when your mortgage broker can go to those same lenders on the wholesale side?!

There is no downside to using a state-licensed mortgage broker who has a legal fiduciary responsibility to get you the best loan at the best price they have available. (Banks and direct lenders don’t have that requirement.)

I am state licensed in CA and WA, NMLS #1284134. I’ve been doing loans for 20 years and have been on both the retail and whole side of the business. If you’d like me to help you get pre-approved, you are most welcome to apply here. Or, send me a message here.



When a Creditor Sends You a Summons

First off, always open a letter from a creditor. Never ignore it because you don’t want to face pexels-photo-534204 courtthe bad news.

If the letter is a summons to court, don’t make the biggest mistake of your life by not showing up! This is so important, and here’s why…

The vast majority of the time, if you show up and say the magic words, the entire case will be dropped and YOU WILL PAY NOTHING.

But if you don’t show up, then the creditor automatically wins, and then they have the right to claw money right out of your paycheck and/or claw money right out of your bank account. You won’t find out until pay day when you see that your check is not enough to live on. And it gets worse…

The creditor typically adds attorney fees and interest to the balance — plunging you even further into debt!

And to think that you could have paid $0 if only you’d shown up in court and said the magic words.

One study shows that 90% of people who receive a summons never show up. Maybe they didn’t open the letter. Maybe they were “busy.” Maybe they’d given up hope. Listen, my friends, don’t let that be YOU.

Show up. Wear your nicest business attire. A button down shirt, slacks, a skirt or dress, a business jacket if you’ve got one. Your best shoes. No tee shirts and flip flops. Present yourself like a financially responsible person.

When it’s your turn to speak, say these magic words: “Prove the case.” That’s right, it’s as simple as that.

I would phrase it like this: “Your Honor, I don’t believe I owe $3,495 (or whatever they’re alleging you owe). I would like for them to prove the case with the original documentation and a detailed explanation of how they got that balance.”

If you think you might be too nervous (or intimated) to remember that, write it down ahead of time and read it when you get there.

The overwhelming chances are that the representative showing up in court will not have proper documentation. Did you get that? Almost every time, at that point, the case against the debtor is dropped.

Just think, instead of owing $3,495 + $500 attorney fees + 24% interest, you could owe NOTHING.

I am sick and tired of hearing stories about good people who lost their jobs, had a medical emergency, are working for minimum wage while trying to take care of their children, and then got intimidated by a greedy creditor who doubled what they owe– supposedly — without ever showing the proper paperwork to prove it. And don’t get me started today about how they paid one penny on the dollar to buy the debt!

There is no reason why they can’t offer you a deep discount/settlement and still make a profit.

So again, don’t let that letter go unopened. And don’t fail to show up in court if you receive a summons.

Thank you for reading! If you’d like to pick up a copy of Repair Your Credit Like the Pros, Book cover Repair Your Credityou can find it here.

Collections, Charge-offs, and Payment Mistakes

What happens when you don’t pay your credit card?

When a person doesn’t make payment on a credit card for six months, it becomes a “terminal delinquency.” At that point, the creditor may charge it off and try to collect money via their own bad debt department, or they can sell the account to a collection agency.

Depending on either of those actions, it becomes a charge-off or a collection on the credit report.

Points are deducted from your credit score based on the date the account went delinquent. The more recent the Date of Last Activity, the more it hurts your score.

Here’s what can happen.

If Visa sells a charged off account to Paradox Collections, Visa is supposed to change the balance to $0, because you now owe payment to Paradox. If Visa still shows an open balance of $1,500 (or whatever sum), that is a violation of the Fair and Accurate Credit Reporting Act. You no longer owe Visa; you now owe Paradox.

If Visa shows the charge-off with a $0 balance and Paradox shows the collection with a $1,500 balance, then it is posted properly. Your score is docked twice for the two negative entries on your report.

But hold on! Paradox might show your balance as $1,700, because they have added $200 in fees. They are within their legal rights to add interest rate charges and fees, per the state law.

The balance may keep increasing each month if state law allows it.

And it could get worse!

Paradox might file a motion in court to claw money right out of your bank account, or to garnish funds straight out of your paycheck.

For doing this legal work, they might add $500 in attorney fees. (Again, per state law. In Washington state, it happens all the time.)

As you can tell, the debt can snowball into a avalanche.

You must never ignore a bill or a debt that you owe.

If you move to another address and don’t receive the bill and forget all about it, that does not excuse you or exempt you. You are responsible to inform your creditors of your new address and to keep abreast of your financial obligations.

If you were on auto-pay and close the bank account and move to a credit union, so that the creditor doesn’t receive payment, the delinquency will be on your credit report. You don’t get to forget to make payments.

If you go on vacation or get married or sail off to Survivor Figi, you don’t get to skip payment.

The credit card companies are not your nice grandma. They won’t give you grace and forgiveness (except in rare circumstance, and don’t count on that).

If you want to get ahead in life, you must take responsibility for tracking all your debts and pay on time. Have a savings account as a safety net in case you’re out of work for a period of time.

Live within your means. Don’t use your credit card to buy stuff you can’t afford to pay with cash.

Don’t go on so-called retail therapy spending sprees if you get depressed. If you do, you will be digging yourself into a deeper depression later.

Dear Nice Person…

I hope this post doesn’t sound too harsh. Please take it as helpful advice from a licensed mortgage advocate who cares about helping people get ahead credit-wise. It’s a good feeling to have A+ credit and receive the respect from everyone you do business with.

Make that your goal, and you will get there. If you had mistakes in the past, dust yourself off and move forward. America loves a come-back!

Stage your own come-back and build the awesome credit report you deserve.

Pick up a copy of Build and Protect Your Credit Like the Pros here.


3 Surprising Things That Hurt Your Credit Score

Don’t cut up your credit card until you read this!

A lot of people, trying to do the right thing, end up hurting their own credit score.

Don’t make one of these common mistakes, because doing so will take points off your score.

Mistake #1

Closing a credit card that has a balance.

This reduces your score, because you have now lowered your debt-to-available credit ratio. If you don’t want to use the card any more because it has an annual fee, pay it off first, then close it. If the card has no annual fee, pay it off and lock it up. By keeping the available credit open, you help your score.

Mistake #2

Having a high balance.

If your credit card is close to the limit, your credit score is being severely docked. This is one of the worst things you can do to your score (besides paying late). Even if all payments are made on time, having a high balance-to-limit ratio hurts your score. Fortunately, this is an easy fix. Once you pay down the card, your score goes up. I recommend keeping your balance below 30 percent of the limit.

Mistake #3

Closing down old credit cards.

Don’t need those old cards anymore? That’s okay, just let them set unused. Cut them up if you like, but don’t close the account. 15% of your credit score comes from length of time you’ve had credit. Longevity is your friend.

How Much Credit Do You Need?

If you have three accounts, you have enough credit. That would be one auto loan, one student loan, and one major credit card. Or two major credit cards and one auto loan (paid off still counts). More about how much and what type of credit to get in another post.

Thank you for reading my blog. I help people increase their credit scores through education and smart strategy.


Need a New Car? How Much Will Having a Low Credit Score Cost You?

Having a low credit score hurts your bank account in more ways than you might have known.

National Credit Care did a study and discovered that people with low credit scores paid on average $200 more per month for auto financing than those with top tier credit.

Let’s look at how much more your car costs based on the financing terms:

$200 per month x 60 months = $12,000 more for the car

$200 per month x 36 months = $7,200 more for the car

How does that make you feel to pay $12,000 more than the last customer, all because of that three-digit score called FICO score or credit score?

What could you do with that extra $7,000 to $12,000 if you weren’t shelling it out in interest to the wealthy finance company?

But that’s not all!

On top of paying more in financing, you also pay a higher insurance premium for having a low score — even if you have a perfect driving record.

That’s right! Insurance companies also check credit scores as part of their determination on how much to charge you for insurance.

And don’t get me started on credit card interest rates…! I’ll save that for another article.

Take control of your credit! Review and repair. Even if you can’t fix everything, you can raise your score and keep more of your hard-earned money in your own pocket.

I don’t know about you, but I can think of a lot things to do with $7,200 to $12,000! Grab yourself a copy of Repair Your Credit Like the Pros here and get started today.

Available in paperback and on Kindle here.

If you know someone who is thinking of buying an automobile, please pass on this information to them, because no one needs to throw away good money on higher interest rates.

Thank you!

How to Shop For a Mortgage

Shopping for the best interest rate can be time-consuming and stressful. Have you ever wished for a Personal Shopper to do the work for you? I have good news!

You can have your own personal shopper for the best loan program and a low interest rate. And, it won’t cost you a thing!

A mortgage broker shops wholesale lenders — which is even better than paying retail at your local walk-in bank. It’s not uncommon for a mortgage broker to have a relationship with 40 to 50 different wholesalers.

A mortgage broker has an automated system for finding the best pricing. On top of that, a mortgage broker knows which lenders have simple requirements and which are difficult requiring a mountain of paperwork.

A mortgage broker knows which lenders process and approve loans quickly and which are slow-moving Behemoths.

A mortgage broker can pick up the phone and speak with the underwriter who sits behind closed doors. The broker can advocate on your behalf, challenge paperwork requirements that make no sense, and get an exception when warranted.

And again, for this stellar service, you do not pay a thing. In fact, you will pay less with a broker than you would with a direct lender the vast majority of the time. Why? Because you will be getting your loan wholesale rather than retail.

When you work with a broker, it’s like you’re getting white glove service at a bargain price.

Over the last year, mortgage brokers have been increasing in business while many banks and direct lenders have been declining in business. More and more people are becoming educated to the advantages of working with a mortgage broker.

This is precisely why I choose to work as a mortgage broker myself.

If you or someone you know would like to purchase a home in California or Washington state, I am licensed in those states (NMLS # 1284134) and would be most happy to help. Inquire online here.


New Credit Score Model is Being Tested: Will Your Banking Affect Your Credit Score?

Right now, your banking habits — how often you deposit money, your account balance, overdrafts — do not affect your credit score. In fact, the three big credit bureaus can’t see and don’t know about such things.

But all that might change this summer.

Experian is working with a data company called Finicity to test a new credit scoring system they call Ultra Credit Scores. If they like the results, then they may roll it out nationally as early as this summer.

How Ultra Credit Score Works

If you give Experian permission, it will access your bank account to collect additional data for credit scoring purposes. What they want to see is no overdrafts, at least $400 as an account balance average for three months, and consistent deposits going into your account.

For example, if your employer automatically deposits your check every two weeks, that’s good. On the other hand, if you deposit your own checks and do so sporadically because you keep cash out for spending and don’t always get to the bank right away, then that is deemed as inconsistent and won’t gain you points.

If you have a nice savings account, that is good. If you have an occasional overdraft, that will hurt your score.

This is all new. Right now, the credit bureaus do not have access to your bank records.

Invasive or a Good Idea?

The idea behind Ultra Credit Scores (so they say) is that it will help young people starting out who don’t have much credit established to gain a good score. But hold on!

If you turned 18 yesterday, you can build a top tier score simply by following best practices without letting the credit bureaus spy on your personal banking habits. The same principle applies to older adults who have thin credit. Start today and build a good credit profile for yourself. It’s not hard!

I suppose if you have thin (not much) credit and you’re in a super hurry to buy a house right now, then the Ultra Credit Score system could help you. Frankly, I think there are a whole lot of Americans who prefer to keep their privacy and will deem it invasive.

Don’t Worry: They Can’t Spy If You Don’t Give Them Permission

Experian cannot access your banking information if you don’t give them permission, so don’t freak out: you are still in control.

Also, Experian is the only one of the three credit bureaus who is testing Ultra Credit Scores. If it ends up bringing them more revenue, then Equifax and TransUnion might follow suit; at this point, we don’t know.

Do You Want to Ensure Yourself of Having Top Tier Credit?

All the information that the professionals know about getting that 740 to 800 credit score is revealed in Build and Protect Your Credit Like the Pros. You can take a look here.

With a top tier score, you will save money on insurance premiums, interest rates, and favorably impress employers. $8.99 ($5.99 Kindle) is a tiny amount to spend to save hundreds and even thousands of dollars.

Thank you for reading my post. I hope you will share it on social media so others can learn about the new credit scoring system.

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