FHFA on credit score delivery: forgotten lessons
Multiple versions of a credit model may lead to added cost and complexity
New Credit After Chapter 7 Bankruptcy
This post is written specifically for those who’ve recently been granted a Discharge from a Chapter 7 Bankruptcy. Chapter 7 is type of bankruptcy where the debtor does not make periodic payments to a bankruptcy trustee for 3 to 5 years.
The first step is to establish new credit in a strategic manner. Of course, you must also use your new credit in a responsible manner. In some cases, it is necessary to get your credit reports corrected to establish new credit. We’ll address both steps below.
First, when establishing new credit. Ignore well-meaning advice to get a $300/500 secured credit card from just any bank that will open an account for you. Start with joining a credit union. With most credit unions, there are no fees. Also, there are no annual fees and no-cost to use many ATMs all over the USA. Take a moment and read my post on credit unions.
In searching for the credit union (CU) to be the fit, do your homework. Call or stop in and ask about secured credit cards (this will lead you to someone that can answer or can get answers to your questions).
Now that you have found your CU, open your Share (savings) account. Save $1,000.00 or more. Secure this savings against a Visa or MasterCard issued by your credit union. To build good and excellent credit scores, use no more than 20% of your credit limit. Ever. For example, on your $1,000.00 credit limit, never have more than $200.00 in use. For best results, payoff the balance monthly. Your higher credit scores get you rewarded with lower interest rates on home and auto loans, insurance, credit cards and better employment opportunities.
Most credit unions will offer an unsecured card after you have established your good credit management practices for one-year. At this time, your savings securing your card will be released and another card issued. Your credit history will follow the new account.
Next, open 2 or 3 lower limit credit card or other revolving accounts (department stores, Internet stores, gas cards, etc.). The key is to have 3 to 4 revolving accounts open and in use occasionally. Do know that credit is a use it or lose it commodity.
On selecting the credit accounts, don’t bother applying to any creditors which were listed in your bankruptcy. Perform a Google Search such as this: “secured credit card + bankruptcy”. In your screening process, avoid those with an annual fee.
After about 9-12 months of opening the accounts as above discussed and using them as above discussed, you should have actual lending scores (FICO® Scores) in the 700-720 range. These techniques have helped many clients over several decades.
Not everyone will need to take step two. All should read the info in step two.
In order to build new credit after bankruptcy, you may need to get corrections made to one or more of your three credit reports to reflect only accurate information. By accurate information what we mean is to make sure that all your bankrupted accounts reflect a zero-balance due.
Understand that a bankruptcy discharge does not remove your previous credit history from your credit reports. Time does. Seven years from the date of last activity (last use or last payment), the account will be removed from your credit report.
Keep in mind that the older a negative item on your credit report is the less it counts against your credit score. Also, the longer you have information reporting on your credit report, the better it counts for your credit history which results in a better credit score.
As a rule of thumb, by the time the case is Discharged, several months following the filing of the bankruptcy case, most creditors will have reported the accounts as included in bankruptcy. In some instances, a creditor fails to update their record with the credit reporting agencies (CRA).
So, in these instances, let’s talk about getting the incorrect items corrected. Often, the dispute process is neither quick or easy. Understand the CRAs are not your friends. Use caution with what you say or write to a CRA. For specifics on how to dispute information on your credit reports, I suggest you read my blog titled: Credit Repair/Dispute Basics.
A word on entering comments to clarify some situation or another; such comments do not do anything positive for your credit scores or your credit history. It is of no benefit to you to make comments. Everything you say can and will be used against you. This is one of those times to consider the Miranda Warning along with the idiom less is more. When and only if necessary, you may address individual items as requested by your loan officer for an underwriter. Open or unresolved disputes on your credit report(s) can keep you from gaining credit approval.
To begin correcting your reports, you need to get a copy of each of your credit reports. There are three credit reporting agencies: TransUnion, Equifax and Experian. You can get a copy of your three credit reports once a year for free via the Official Site authorized by Federal law: http://www.annualcreditreport.com. It does you no good to only review one or two reports. Review all three of them annually.
For mortgage approval (purchase or refinance), two (2) years following your Discharge, you will be eligible to apply for an FHA, VA or Rural mortgage loan. Four (4) years following your Discharge, you will be eligible to apply for a conventional mortgage loan.
Contact me below or via Quora with specific questions.
Notice: The information on this blog is opinion and information. While I have made every effort to post and link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.
Credit Reporting Changes – Effective by June 8, 2018
Pursuant to a 2015 settlement between the New York Attorney General and the three credit reporting agencies, important changes are on the way to consumer credit reports. An additional agreement between the three credit reporting agencies and another 31 state attorneys general ensure the changes will be nationwide. The changes are being made in three phases with the most significant and final phase which must be implemented by June 8, 2018.
The most momentous impact for the largest number of consumers concern medical collections:
- The credit bureaus – Experian, Trans Union and Equifax must reject any report of a collection that is not at least 180 days old. Thus, giving the insurance company or consumer time to pay the bill before it is reported as a collection account.
- Medical collections which are paid, or which are being paid through insurance will be removed or suppressed from credit reports.
- Collection accounts which have not been updated on the report for six months must be removed or not factored into the scores.
- The credit reporting agencies will remove any collection that did not arise from a contract or agreement to pay by the consumer. This includes, among other items, collections for traffic and parking tickets or library fines.
This will have a substantial impact on a consumer’s credit scores. Any collection account will negatively impact a consumer’s credit score by at least 100 points. Not having those collections factored in or having them removed provides opportunities for many consumers that could not previously qualify for home or vehicle loans as well as credit cards. This will also help consumers obtain lower insurance premiums, allow for greater employment opportunities* and possibly even better romantic matches.
Authorized user(AU) accounts are also affected. The credit bureaus will not allow AU accounts to be reported unless the date of birth of the AU is provided by the creditor. So, going forward, anyone adding an AU to their credit cards will need to supply the user’s date of birth before it will be reported on their credit report.
The bureaus must now communicate with each other regarding mixed files. If one of the credit reporting agencies receives a dispute from a consumer that their file is mixed, the credit bureaus must now use specially trained staff to communicate and globally correct the problem.
The credit reporting agencies can no longer reject a consumer’s second dispute of any account because they had a previous dispute of the account in the last three years. This does not apply to disputes made by credit repair organizations (CRO) on the behalf of a consumer. CROs are infamous for entering multiple disputes for consumers on the same accounts monthly. All but the first dispute made by a CRO will be rejected.
All changes will be implemented on all scoring models and must be in place by June 8, 2018. These changes are long overdue and will have positive impact on thousands of consumer reports.
*Colorado prohibits the use of credit reports in determining employment eligibility with certain exceptions.
Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.
Experiencing a severe credit event such as foreclosure, short-sale, deed-in-lieu of foreclosure or bankruptcy does not mean you will never be eligible to get a home loan. This chart provides the time-out periods required by event. The assumptions are that you have established acceptable credit scores and meet underwriting guidelines. In certain circumstances, one may qualify for a mortgage upon discharge of a Chapter 7 or during a Chapter 13.
Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | Originally published in 2010 and updated regularly | September 19, 2017 Contact me to obtain a pdf copy of this chart.
Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.
Credit Bureau Breached – 143,000,000 American ID’s at Risk – Use The Below Links
Equifax, one of the major credit reporting agencies in the United States discovered their security systems have been breached.
Social Security, Driver License, Dates of Birth, Addresses and other personal information has been stolen.
This effects about half the population of the USA.
See if your personal information is potentially impacted. Schedule now to see if your ID has been compromised. There is no cost to you. Register now, there is a lag time. Many others are also registering.
Although it is a huge pain in the posterior (both to implement and to deal with when you apply for credit) I am now placing a freeze on my credit, too, with each of the four credit bureaus.
The downside is having to remove the freeze whenever you wish to apply for new credit, open a new account with a financial institution, obtain insurance or in some cases get a new job. Another downside is having to pay to release the freeze for a specific purpose or to have it removed. And there are the new PIN numbers to keep safe. Aaarg.
It is actually rather easy to set up a freeze on your credit files with the three bureaus. I don’t think this can be said for the “free” credit report/free credit score sites. Frankly, I don’t think you can do anything to protect your information once it is provided to the “free” service provider.
Frankly, if Equifax cannot keep my information secure, I am not about to provide my personal information to sites that offer free credit and free scores. I have never forgotten what Robert Heinlein wrote in 1966:.
UPDATE September 11, 2017
The following information was provided to me this morning by EQUIFAX pursuant to my registration to determine whether my ID had been compromised.
A Progress Update for Consumers
September 11, 2017
We are committed to keeping consumers updated on the steps we are taking to provide them with the support they need and address any issues they are facing in response to this incident. We recognize that some consumers continue to face challenges and in response we have made the following updates:
1) Adjusted our PIN Generation for Security Freezes
We understand and appreciate that consumers have questions about how a PIN is currently generated for a consumer initiating an Equifax security freeze solution. All consumers placing a security freeze will be provided a randomly generated PIN.
2) Call Center Support
When we recognized that Hurricane Irma could impact some of our call center wait times, we arranged to ramp up agents quickly to replace agents impacted by the storm and updated our website to make consumers aware of the situation.
3) Clarification Regarding Automatic Sign-Up to TrustedID Premier
We are not requesting consumers’ credit card information when they sign up for the free credit file monitoring and identity theft protection we are offering to all U.S. consumers. Consumers who sign up for TrustedID Premier will not be automatically enrolled or charged after the conclusion of the complimentary year of TrustedID Premier.
4) Obvious Link from Equifax.com
To make it easier for consumers to find the website dedicated to providing information about this incident, we have reconfigured our website, www.equifax.com, to feature the link more prominently.
5) Adjusted the TrustedID Premier and Clarified Equifax.com
We are listening to issues consumers have experienced and their suggestions. These are helping to further inform our actions, and we are now sharing regular updates on this website. Thank you for your continued patience and feedback as we continue to improve this process.
Following are the snips I gathered while enrolling in the EQUIFAX Trusted ID this AM.
For better or worse, this is what it is.
UPDATE: Here is an article from Mawlwarebytes, published on September 14, 2017, which offers additional insights into identity protection: Equifax aftermath: How to protect against identity theft
UPDATE: 10/3/2017: Here is an article from HousingWire updating (increasing) the number of consumer files breached: EQUIFAX reveals data breach bigger than first thought. Fret not, Equifax won the NO BID contract to protect all IRS files from being hacked. Seriously. I can’t make this up. For more info you may read this from NPR.
UPDATE: February 5, 2018 – “The Trump administration has chosen to protect Equifax while denying Americans justice and accountability.”
February 6, 2018 – U.S. Treasury Secretary Steven Mnuchin on Tuesday said he wants to know how the Consumer Financial Protection Bureau is handling a probe into a hack of credit bureau Equifax Inc (EFX.N) after a report that the agency’s chief has pulled back from investigating the matter. Treasury’s Mnuchin says he wants answers on Equifax breach
February 6, 2018 – Consumer Affairs – Report claims CFPB is backing away from Equifax probe – Sources say the consumer agency shows little interest in the agency’s 2017 data breach
February 22, 2018 – Specifically, the [House] Democrats want Equifax to provide at least three years of credit protection and identity theft services to the breach victims, rather than the one year Equifax is currently providing.
UPDATE: March 1, 2018 – Oh Joy! <insert sarcasm font> BREAKING NEWS – Equifax reveals 2.4 million more people were victims of data breach Equifax revealed Thursday that an additional 2.4 million people are victims of the company’s 2017 data breach. Initially, the company said the personal information of approximately 143 million people was stolen. Now, it turns out that the number of victims is actually closer to 148 million. Click the headline to read more. Sadly, Trump’s Budget Director, Mick Mulvaney, a/k/ the Dual-Hatted Acting Director of the CFPB will do nothing to help/direct Equifax protect our private information.
March 1, 2018 – Equifax’s bottom line not dented by data breach, profits rose 20% in 2017 – Net income up 40% in fourth quarter
UPDATE: May 11, 2018 – Equifax reveals how much information was really exposed in data breach – How Bad Was It? Bad.
The credit agency did not reveal any new, previously unknown victims of the breach, but it did detail the types of identifiable information, and how much of it, that was left exposed because of the breach.
Notice: The information on this blog is opinion and information. When a business is named, it is not due to commercial purposes as I do not accept or solicit compensation from any individual or entity which may be mentioned. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.
Kudos to Suzanne Woolley for authoring an article which accurately portrays how one can improve their credit.
Cancelling infrequently used credit cards may seem like a good strategy, but your credit score may be adversely affected. Adam Carroll, Founder and Chief Education Officer of National Financial Educators, explains: “When you have a long-standing trade line, which is what a credit card is considered on your credit report, and you cancel that card for whatever reason, your score will actually go down as a result because one of the main impacts on your credit score is the length of credit history.” A shorter credit history translates to higher risk in the eyes of lenders.
Sean McQuay, Credit and Banking Expert at NerdWallet, agrees but includes another reason to keep older cards, noting that closing a card account results in “decreasing your overall credit line, which basically signals that a bank trusts you less.”
In addition to decreasing your overall credit line, closing an infrequently used account raises your credit utilization your total credit in use compared to your cumulative credit line. High credit utilization suggests a greater chance of falling behind on payments and/or defaulting on debts.
To avoid these pitfalls, make periodic small purchases on all your open credit cards to keep them active and pay the balances in full at the end of each billing period. By keeping credit spending low, you can still address debts while getting the full benefits of your credit account.
It’s okay to concentrate most of your credit spending in one account to maximize rewards. Just use alternate accounts often enough to keep them from being closed for lack of activity.