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.
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.
JUNE 09, 2016
Equifax, Experian and TransUnion today launched a new website, http://NationalConsumerAssistancePlan.com, to inform and update consumers about implementation of the National Consumer Assistance Plan, an initiative launched by the three companies in March, 2015 to enhance their ability to make credit reports more accurate and make it easier for consumers to correct any errors on their credit reports.
“Providing both consumers and businesses with accurate, transparent credit reports is our first priority,” said Stuart Pratt, President and CEO of the Consumer Data Industry Association, the trade association representing the consumer data industry, including the three national credit reporting agencies. “The nationwide consumer credit reporting companies are making important changes to their procedures that will improve their ability to collect accurate information, and we want to make sure consumers know about the new options available to them.”
The National Consumer Assistance Plan is being implemented over three years, and the new website will serve as a vehicle for updating consumers about changes to their ability to interact with the nationwide consumer credit reporting companies.
Changes included in the National Consumer Assistance Plan include:
- Consumer experience:
- Consumers visiting www.annualcreditreport.com, the website that allows consumers to obtain a free credit report once a year will see expanded educational material.
- Consumers who obtain their free annual credit report and dispute information resulting in modification of the disputed item will be able to obtain another free annual report without waiting a year.
- Consumers who dispute items on their credit reports will receive additional information from the credit reporting agencies along with the results of their dispute, including a description of what they can do if they are not satisfied with the outcome of their dispute.
- The credit reporting agencies (CRAs) are focusing on an enhanced dispute resolution process for victims of identity theft and fraud, as well as those who may have credit information belonging to another consumer on their file, commonly called a “mixed file.”
- Data accuracy and quality:
- Medical debts won’t be reported until after a 180-day “waiting period” to allow insurance payments to be applied. The CRAs will also remove from credit reports previously reported medical collections that have been or are being paid by insurance.
- Consistent standards will be reinforced by the credit bureaus to lenders and others that submit data for inclusion in a credit report (data furnishers).
- Data furnishers will be prohibited from reporting authorized users without a date of birth and the CRAs will reject data that does not comply with this requirement.
- The CRAs will eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as traffic tickets or fines.
- A multi-company working group of the nationwide consumer credit reporting companies has been formed to regularly review and help ensure consistency and uniformity in the data submitted by data furnishers for inclusion in a consumer’s credit report.
The National Consumer Assistance Plan builds on other steps the credit bureaus have made in recent years to improve consumer’s ability to resolve issues related to credit reports. In 2013, the companies launched a process under which consumers can upload documents digitally to dispute how their lenders have reported their accounts to the credit bureaus.
The plan was launched after cooperative discussions and an agreement with New York Attorney General Eric Schneiderman and a group of other State Attorneys General.
Source: News Release