What you don’t know about collections can hurt your credit score.
Here are two facts most people don’t know:
1) The balance does not affect your credit score.
Whether you owe $100 or $10,000, it makes no difference in your credit score. A collection is a collection is a collection. Why?
Because a large balance might indicate a person has a high income; whereas, a small balance might indicate a person had a low credit card limit and therefore has a low income. Since it is illegal to consider income for credit scoring, the credit reporting agencies are barred from making a difference in score due to the balance.
This is important to know, because if you’re thinking your score will go up as you pay down the balance, you are in for a disappointment. The only way you will get your score to go up is by the collection aging older and older, until eventually it is off your report. (Unless you get it removed early.)
2) Paying off a collection will lower your credit score.
This is counter-intuitive and unfair. Nevertheless, that is the way the system is set up. As per above, your score cannot go up by lowering your balance on a collection account. On top of that, when you make a payment it updates the “Date of Last Activity” (DLA) to current, and that reduces your score.
A lot of good people try to do the right thing by paying off an old collection account — and then they are penalized for it!
The Best Way to Handle a Collection Account
If your collection account is old, then let it age off.
If your collection account is medical or less than $2,000, then you will not be required to pay it off in order to get approved for a home loan.
If your collection account is large and/or the collector is contacting you for payment, then negotiate a settlement with the stipulation that it will be removed from your credit report when it has been paid in full as agreed.
If you receive notice of legal action, do not ignore it! Work out a settlement, or if necessary, go to the court hearing and explain your situation. If you blow off a court hearing, then you automatically lose by default, so that is the worst thing you could do.
There are reputable, licensed credit repair companies that can help you with negotiations and legal issues. I do not recommend attorneys or lawyers (especially if they advertise all over the Internet–those are usually the worst). I recommend credit repair specialists who have over 10 years’ experience, because, in my opinion, they work faster, better, efficiently, and get better results.
Thank you for reading and passing on this info to others via shares.
New credit leniency and protections for our highly respected U.S. Veterans have been signed into law. Here are the important points to know:
- Medical debts/collections incurred cannot be reported to a veteran’s credit report for one full year from the time the medical service was provided.
- If any medical debt has been reported as delinquent, a collection, or a charge-off, it must be removed from the veterans credit report once it has been satisfied.
- If a medical debt is in the process of being paid by the VA, and the Veteran provides the proper documentation to the credit bureaus, it must be removed from their credit report.
- Veterans on active duty are to receive free credit monitoring that will alert them to any material changes on their credit reports.
Thanks to the Economic Growth, Regulatory Relief and Consumer Protection Act initiated by Senator Mike Crapo (R-ID) and signed into law May 2018.
Thanks to Credit Repair Resources, LLC, for this information.
Thanks to every United States Veteran and Service Member for protecting our great nation.
Please pass on this important information to every U.S. Veteran, because many have medical accounts and are unaware of this law. Thank you.
Elisabeth is best known for her work on Good Morning America, The Washington Post and Dr. Oz.
Easy Money is full of surprising ways to MAKE more, SAVE more and find YOUR unclaimed money.
I shared my story about the benefits of improving your credit score . Let me know what you think of my episode!
As we celebrate living in the Land of the Free and Home of the Brave, it occurred to me that being strapped with bad credit is the opposite of freedom. When you can’t enjoy life because you’ve got creditors hounding you to pay bills, that is not freedom. When you can’t get a decent interest rate on a car loan or decent insurance premiums because of a low credit score, that is not fun.
I urge you to take control of your credit and finances. No matter where you are today, you can make a plan for your future. It might not happen overnight, it might take some self-discipline, and some work — but that is what our legacy is all about.
Our forefathers and foremothers — all of them, not matter where they came from, whether rich or poor — wanted to be free. Let’s grab hold of that spirit of determination and pursue whatever it is that we need to do in order to make tomorrow better.
Credit repair is legal and ethical, when it is done properly. Others are repairing their credit and restoring their good name, and you can, too.
Harold from Indiana wrote this is an email (and gave permission to share it):
My score has gone up 89 points in a 2 month period. After mailing the letters it didn’t take long for them to respond, maybe 2 weeks. I will continue to work at improving my credit. Once again your book is amazing and it truly works.
He is talking about Repair Your Credit Like the Pros: How credit attorneys and certified consultants legally delete bad credit and restore your good name. You can get more details here.
Have a happy and safe Fourth of July! God bless America!
“My credit report shows several negative accounts that I need to dispute. Can I include them all in one letter?”
This is a common question, and I go into detail about how the professional credit repair specialists handle it in Repair Your Credit Like the Pros. But let’s talk about common sense.
If your credit is mixed up with another person’s credit, such as your name is Charles Moon, Jr. and Charles Moon Sr.’s credit is showing up on your report, then you should include all of Sr.’s credit accounts that do not belong to you in one letter. Also include two pieces of ID showing you are Jr.
If you were in the hospital getting an appendectomy and some of the bills went into collections because your insurance company messed up, then include all of those collection accounts in one letter, because they are all related to one event.
So, if the erroneous negative accounts are all related, include them in one letter — and if possible, send verification along with it.
On the other hand, if your report shows a collection account from Comcast dated 2013, and a collection account from Sears dated 2016, then it’s clear that those two accounts are not related to one another. Therefore, you must dispute them separately. For each, explain why it is incorrect and request that it be removed from your credit report. You can use a handy Credit Investigation Request Form that goes with the book if you like. It’s a good idea to hand write a short explanation in the white space. Or, if more appropriate, you can use a letter.
Some people have asked me what I think about the 609 template letters. I know a lot of people use them, and that’s one problem. They are over-used. Another problem is that they sound like legalese, not like something an honest citizen would write about his/her situation.
What’s more, the top credit repair experts that I interviewed and have worked with do not use those letters. The book is called Repair Your Credit Like the Pros.
Credit repair is a big topic and it is both simple and complex. It’s too much for a blog post, but I hope that using common sense will make sense to you for your situation. For more detailed instruction, please see the book.
For the record, I do not do credit repair, nor do I give credit advice by email. I am a licensed mortgage loan officer in California and Washington; and as all mortgage professionals do, I have helped my clients get approved for a home loan.
Written by Mr. F. McGehee Woolf, mortgage loan manager, licensed in Louisiana and North Carolina (NMLS 89625):
As a client of ours over the years you may recall the importance of having acceptable credit as a primary consideration in the home buying process. Many fall below the acceptable ranges to be approved. This can be very demoralizing, and they typically consider some unattractive options, such as:
- Listen to a friend and dispute all the negative credit information.
- Pay a company or an attorney to rehabilitate the credit which often delivers mixed results.
- Do nothing and keep renting.
Since people look to me for guidance I wanted to learn more about how someone could help himself or herself in this frustrating circumstance. I recently read the book by Carolyn Warren titled Repair Your Credit Like the Pros. It’s an easy read loaded with excellent direction on what to do in almost every conceivable circumstance. Ms. Warren will even provide you with the letter templates you need to be successful.
I contacted Ms. Warren asking for her permission for me to notify you of the availability of her book, and she
graciously granted it. I wholeheartedly endorse it. You can click on the link below and it will take you to the Amazon page where you can purchase her book for $13.49. With her book and some focused effort, most people will be able to get their credit in order.
Best of luck and let me know if I can help you in any way.
F McGehee Woolf, Loan Production Manager NMLS No. 89625
For loans in North Carolina and Louisiana, visit website here. Office: 225.767.5355
“Chase not only removed all my late payments but also refunded over $350 in fees!” ~~ Sarah S., Florida
Sarah had moved several times and in the process, she’d unintentionally forgotten about the Chase account. Easy to do when no billing statement comes! By the time she checked her credit report, late payments had already posted and her score had been docked.
Time to spring into action! Sarah picked up a copy of Repair Your Credit Like the Pros: How credit attorneys and certified consultants legally delete bad credit and restore your good name. See here.
After reading Chapter 15, she called Chase and asked to speak with a supervisor in charge. She opened the line of communication in a professional manner. She explained that her credit is very important to her, and she would not have missed a payment had she received a bill. She told the truth. By the end of the conversation, the supervisor said:
“I have determined that you were not receiving your statements”; and therefore, you “couldn’t have known you had a bill.”
As a result, both the late payment record and the late fees were removed.
In a follow-up email, Sarah wrote (and gave me permission to use on my blog):
I wanted to write to you with a heart of gratitude! Thank you so much for writing your credit repair book. Within two
months of starting the credit repair process and sending out first letters, my husband and I have raised our score over 100 points! We are pre-approved to buy our first home. God is good.
Thank you again,
Help is coming for people who are drowning in collections and debt. And for people working on fixing their credit.
The Consumer Financial Protection Bureau (CFPB) is going through certain proposals to overhaul the debt collection industry. The idea is to stop abuse and make sure collectors are following proper protocol. But in this overhaul, there is good news for folks who are suffering from charge offs or collections on their credit.
First, the CFPB is going to put a new limit on how often the collector can contact the person owing money. They want to stop the harassment that sometimes happens.
Second, they will be required to disclose more details, which will make it easier for people to dispute inaccuracies.
Third — and this is a big one — collectors will not be able to pursue collecting money during the dispute process without providing sufficient evidence.
Furthermore, these rules also apply if the account is sold or transferred to another collection company.
As I said, this is all being reviewed by the CFPB now. Stay tuned for more information as it becomes available by subscribing to this blog (on the right side). And please pass on this information to others who are struggling with debt, imperfect credit, or who are professionals in the mortgage or real estate industry.
Many thanks to photographer Ian Espinosa for the free use of his photo.
If you have a tax lien or civil judgment that does not contain the proper and correct identifiers, then Equifax, Experian, and TransUnion will remove it from your credit report this month, beginning July 10th. The identifiers are name, address, and either social security number or date of birth.
There is no need to send a letter requesting the deletions. If your lien or judgment does not include the identifiers, the account will be removed. It doesn’t matter if it is paid or has a balance. This is about proper identification, not about money owed. The expectation is that about 50% to 60% of tax liens will be deleted, and about 95% of civil judgments will be deleted.
If you are fortunate to have one of these derogatory accounts removed, you should see your credit score go up. This, in turn, could qualify you for a better interest rate or a better loan program when borrowing money or getting a mortgage.
How Much Will Your Credit Score Increase?
How many credit points you might gain depends on the rest of your credit report. If you have a clean report with one lien that gets removed, you could see an improvement of 40 to 50 points, which would make a significant difference. On the other hand, if your report is scattered with late payments and collections, your score will probably increase by only 10 points or so.
Getting the Credit Deletion Does Not Mean You Don’t Still Owe Money
Let’s say you hired a contractor to replace your roof, then due to hardship, you did not pay. The contractor then filed a civil judgment that went on your credit report. This judgment contains your name and address, but is missing your social security number and date of birth. This judgment will be removed from your credit report, but that doesn’t mean you don’t still owe the contractor for the work he performed. This is not a license to steal from the contractor. What’s more, the next time a title report is pulled, this lien is going to show up, so when you sell the home or refinance, this lien must be paid.
If you owe on back taxes, you can expect that to stick like glue to your social security number, even if it gets removed from your report for not having your address.
Checking On Your Credit
To find out if your lien or judgment was removed, order your free annual credit report by mail from http://www.annualcreditreport.com. Don’t be lazy and order online for the many, important reasons stated in Repair Your Credit Like the Pros. Or, you can call 877-322-8228.
Please share this information via social media, because it affects a lot of people. Thank you.
The credit bureaus (also called credit reporting agencies or CRAs) have adopted a new policy: tax liens and judgments will be removed from credit reports if they do not include the proper information identifying them to the individual.
It is estimated that 60% of tax lien information will be removed from credit reports and ALL civil judgment records will be removed!
A release from TransUnion gives some insight about what to expect:
- Based on feedback, most Bankruptcy information will meet the minimum reporting requirements, so don’t expect those to go away.
- The new standards will apply to both new and existing public record data.
- Minimum identifier data required: Name, Address, Social Security # and/or Date of Birth
- Minimum frequency courthouse visits to obtain newly filed data: 90 Days
When it will roll out: During the week of July 10, 2017, the CRAs will remove from their databases previously collected public record data that does not meet the enhanced standards.
Please pass on/share this news, because it will give a lot of folks new hope that they are not forever stuck in bad credit.
Many thanks to Credit Repair Resources, Inc. for this information. firstname.lastname@example.org