Medical Debt: Accurate vs. Inaccurate

It’s recommended that consumers pull their credit reports at least once a year. Why? Because up to 20 percent of all Americans are estimated to have some sort of error on their report. Checking the report and taking the necessary corrective action is really the only way to have any issues resolved.

But according to a recent report in The New York Times, credit reports aren’t the only credit-related entity that’s problematic for consumers. In fact, The Times states that medical debt collectors are becoming a routine nuisance – and up to two-thirds of all who have complained to regulators about them say that they don’t owe the money that’s being asked of them.

Noting this, what can consumers do to decipher the difference between accurately and inaccurately reported medical debt? Here’s a look:

Medical Debt: Accurate vs. Inaccurate

The Times says that medical debt issues are the second largest debt-related complaint that is issued, only being topped by credit card complaints. Most experts state that issues related to medical debt are largely due to the current health care system as well as consumer confusion. However, The Times article also states that overaggressive debt collectors and debt collectors going after the wrong people can also pose an issue in medical debt collections. Here’s a look at how to better gauge if the medical debt you’re being asked to pay is accurate:

Keep tabs on your records and keep notices on any treatments, office visits or hospital stays, or notices that you’ve received and paid. If you’re ever in doubt, contact your health insurance provider to better understand what your plan covers as well as what your deductible and co-insurance is.
Contacted by debt collectors? Take note of the communication and refrain from making any immediate payments until you can contact your doctor’s office or insurance provider to understand whether you’re on the hook for said debt. If the collector is being abusive or acting illegally, immediately file a complaint with the Consumer Financial Protection Bureau.
If you do owe toward a treatment or procedure, don’t pay with a credit card. The interest you’ll pay on the debt can hurt you more long term.
Check your credit report annually: As we noted in the opening, doing so can help consumers sniff out any errors before they have a chance to hurt their purchasing power when applying for a loan or credit card, for instance. In the case of medical debt, it’s common for debt collectors to put small amounts owed on your credit report. However, these usually small amounts aren’t really worth it to aggressively go after for the collector, so it’ll just sit there. Noting this, it could blindside you.

The latest scoring system from FICO downplays the significance of medical debt as it translates to your credit score, so you don’t have to worry about a major impact to your purchasing power if you do need to settle a debt. It is important, however, to understand and get medical debt issues resolved.

Tax Liens, Judgments Could Be Omitted from Credit Reports in a Future

For tax liens The Consumer Financial Protection Bureau (CFPB) has been winning a lot of battles for the people lately. Aside from socking Equifax and TransUnion with fines for deceiving consumers back in January. More recently, it hit Experian with a $3 million fine for the same thing in March. Now, it’s recently championed an effort to change the way tax liens and judgments are reported on your credit record. It’s a major shakeup when it comes to credit reporting.

Specifically, per a report in the Wall Street Journal, Experian, Equifax and TransUnion – the three major credit reporting agencies – will soon be readjusting their respective credit reporting models to omit tax liens and judgments. It’s a move that could help out millions of Americans when it comes taking control of their finances in the future.

What This Means

This move looks to help out millions of consumers and could very well raise the overall average credit score nationwide. This news is especially significant when you consider how crippling tax liens and judgments currently are to most consumers. Presently, tax liens and judgments, even if they’ve been resolved, can stay on a credit report for up to 10 years. That’s right, even if they’ve been paid off, a consumer’s best bet is to get it released and then petition the credit agencies to remove it from their record to avoid extensive credit repair.

Unresolved liens and judgments stay on a credit report for 15 years.

To be fair, there’s still some things that we don’t yet know when it comes to this news. For instance, will consumers have to petition the agencies to have liens and judgments removed? Or will the agencies perform this automatically? That’s an unknown. What’s not an unknown, however, is how positive a move like this can be for consumers.

Not Everyone’s Happy About It

While consumers should be welcoming this news, not everyone is happy about it. For instance, this report is putting lenders a little bit on edge. Why? Simple – it provides less data for them to assess consumer risk. When lenders make the decision on whether or not to approve a loan, it becomes a question largely of how reliable of a consumer they’re working with. A tax lien or judgment on one’s credit report would certainly factor into their decision, and being that it can take up to 15 years for such to be removed from an individual’s credit report, it provides lenders with more of a comprehensive history of consumer behavior. This news, obviously, alters that, giving lenders one less thing to ultimately analyze. In a worst-case-scenario situation, it could wind up burning a lender in the long run.

Credit Mistakes – 68% of Americans Make Them

Are you an American resident under 30 years old? If so, chances are you’ve made at least one major credit blunder, or credit mistakes that could haunt you for a while and make it difficult to get a low interest rate or even approved for credit at all.

That’s right, according to a recent survey conducted by Credit Karma, some 68 percent of all Americans have at least one negative mark on their credit report. According to the survey, such marks often include maxing out a credit card, late payments, defaulting on a loan or having an account sent to collections. About three out of every four respondents stated that they believed the credit mistakes had a negative impact on their life.

Needless to say, but the more severe the blunder, the more it will impact your credit. What’s more is that such penalties can stay on your credit report for up to 10 years.

Avoiding a Credit Disaster

While it makes sense that a younger age demographic would experience more credit mishaps than a more experienced one (live and learn, right?), the Credit Karma survey concluded that the best way to avoid a credit disaster among these youngsters is to be properly educated about the importance of your credit score, as well as how to manage personal finances. Bottom line: before you get that first credit card, know the importance of your credit score and the responsibilities associated with properly managing your finances.

Repairing Credit

If you’re among the 68 percent of Americans that did some damage to your credit score before you were 30 and are still paying the price, here’s a look at how to get that credit score repaired and back into shape:

Get under 30 percent: Always strive to have your debt-to-credit allotment under 30 percent. For instance, if your credit limit is $10,000, try to keep the balance at or below $3,000 for the best possible credit score.
Pay down debt: Always pay down the high-interest accounts first, as you’ll not only work toward a no balance account, but also save money in the long-term.
Make payments on time: This is perhaps the easiest way to up your credit score, yet it’s one that people struggle with. The bottom line is that late payments can greatly impact your score, so do what you need to do (schedule auto payments, set phone alerts, etc.) to remind you when bills are due.
Get a secured credit card: These cards require cardholders to put up “collateral” to obtain a credit line. They’re a great way to build credit and eventually can be helpful in the desire to apply for an additional, standard credit card.

Credit Repair 2016!! – Credit Resolutions

Your credit score is important – it’s time to start treating it like it is. That is, if you haven’t already done so.

Yes, a poor credit score can cost you in higher interest rates – if you even get approved for a loan or mortgage at all. In turn, you can end up paying hundreds, thousands, perhaps even tens of thousands of dollars more over the lifetime of a loan than you would if your score was good.

So if you haven’t already put an emphasis on getting – and maintaining – a good or exceptional credit score, why not start now? Here’s a look at some resolutions to help you in 2016:

Check Your Report

Get into the habit of checking your report at least once per year. Why? Because it’s estimated that some 42 million Americans have some sort of inaccuracy on their report. Get the report, look it over and take the necessary steps to dispute any errors on it.

Lower Your Debt-to-Credit Ratio

Say you have one credit card with a $10,000 limit and you’ve racked up $5,000 on it. Your debt-to-credit ratio is at 50 percent – and it’s likely costing you with a higher score. Generally speaking, the higher your debt-to-credit ratio is, the lower your score – and vice versa. For a better credit score, simply work to keep this ratio at or below 30 percent.

Think Twice Before Closing Accounts

Many people think that paying off – and closing accounts – will help their credit score. That’s not necessarily true. While paying off accounts will help your score, keep in mind that the credit bureaus take credit history into consideration as far as your score goes – so it’s important to have it on your record. Closing accounts can actually impact this part of the score. It can also impact the aforementioned debt-to-credit ratio. So instead of focusing on closing accounts, focus more on paying them down – start with the high interest accounts first.

Simplify Things

Pay all of your bills on time. Keep your balances low. Don’t get carried away with applying for new credit.

Simple enough, right? So do it! Set calendar reminders or automatic payments to ensure your bills are being paid in full and on time. Keep your debt-to-credit ratio in check and only apply for credit when you actually need it – not just to get 20 percent off on in-store purchases or for some other promotional offer. Keep it simple and your score will rise to a point where you’ll likely be happy.

Free Annual Credit Score – Why Can’t I Get One?

Upon request, every consumer is entitled to a free credit report each year. And this isn’t just something that the credit reporting companies do out of the goodness of their hearts, consumers are entitled to this by federal law – and for good reason. After all, many entities pull consumer credit reports as part of a background check, so taking the initiative to get your credit report on an annual basis gives consumers a better idea of where they stand big picture-wise and allows them to see if there are inaccuracies on their report.

However, while consumers are entitled to get credit reports on an annual basis, it may surprise you to learn that there’s no federal law in place where consumers can receive complimentary annual credit scores. This isn’t from a lack of trying though – lawmakers introduced legislation in both 2009 and 2013 that would federally mandate this, but both bills stalled before they could be signed into effect.

It’s important to note that it’s not difficult for consumers to attain their credit scores free of charge if they know where to look – and at a frequency of much more than just once per year – but it is somewhat odd considering the difference between credit reports and credit scores in terms of being federally mandated.

Why No Free Credit Scores?

So just why has legislation for free annual credit scores stalled on the federal level? The consensus seems to be that there are just too many different credit scores with too many different formulas to choose from. And while the FICO score is the most commonly known credit score, the fact that lawmakers couldn’t agree on just one score is a likely culprit for its failure to be signed into law. If there was a lone universal credit score, there’s a good chance that this would already be a law. And while that may happen in the future, there’s no indication that such is imminent.

How to Get a Free Credit Score

As we mentioned earlier, it’s not difficult to attain your credit score for free – you just need to know where to go to get it. Many banks and credit unions will offer to pull it for you for free from time to time, and there are a bevy of online services that will allow you to see it for free several times a month.

We strongly advise taking advantage of federal law and pulling your credit report on an annual basis. We also recommend utilizing the various credit entities to check your credit score, at least on a quarterly basis. One thing to keep in mind with the latter, however, is that you want to be checking your credit score and comparing it against the same scoring model to give you a better idea of how it has improved or declined.

Canceling Your Credit Cards – The Right Way

Buying A HomeSo you’re thinking of canceling a credit card or two? Before you do anything, make sure you’re doing it for the right reasons. For instance, many people incorrectly think that canceling a credit card will help their credit score. But because canceling a credit card may reduce your credit allotment – and thereby your debt-to-credit ratio – canceling a card could actually hurt your overall score.

Bottom line – before you go about canceling credit cards, make sure it’s for the right reasons and won’t cause you to enact any credit repair tactics to build your score back up. Canceling a card, particularly an older one, may also hurt your credit history, another factor that goes into your FICO score. Good reasons for canceling a credit card, for example, are because of poor customer service, annual fees or if you just plain don’t use a particular card anymore.

Closing Your Card: Contacting the Company

After you’ve made the decision to cancel your card, your next step should be to contact the credit card company and inform them of your choice. From here, the initial representative that you make contact with will likely transfer you to their retention department, where a specialist is tasked with keeping you as a customer of that particular credit card.

If you’re not interested in speaking with a specialist, whose goal is to keep you a customer, see if you’re able to close your account online to avoid the hassle. Often times, retention representatives will offer additional award points, waive annual fees or offer some sort of other incentive to keep you as a customer. If you’re dead set on canceling, you’ll just have to keep declining their offers.

Tie Up Loose Ends

Regardless of the reason behind why you’re canceling your credit card, there are various loose ends you’ll have to tie up. For instance, if there’s a remaining balance left on your account, you’ll need to settle that before you can officially close it. Secondly, you’ll want to be sure that you’ve cashed in or transferred any reward points that you hold with your credit cards – that is, if you don’t forfeit any earned points by closing the card out.

Finally, after you’ve paid off any balance and redeemed any reward points, don’t forget to destroy the card. Even though your account is closed and the card is inactive, it can’t hurt to discard of anything that a potential hacker could track back to you.

As you can see, closing out a credit card isn’t a complicated affair – you just need to make sure that you do your due diligence and that you’re canceling for the right reasons. Canceling for the wrong reasons may actually hurt you more than it could potentially help you.

Credit Repair Process – The 3 “Ups”

The process of getting credit repair can be intimidating. The reports can be confusing. The process of addressing each entry can be hard for people to grasp. And, in some cases, there may be a few entries that someone might find embarrassing. But, it can all be put into perspective by dividing the process into a few simple, discrete steps. We like to call them The Three Ups:

Clean Up

During this phase, negative entries are removed. Each of the three credit bureaus has a dispute process in place. Entries that don’t belong on your credit report can show up in error; research shows that two-thirds of credit reports include some sort of mistake. Errors can include showing debts that were already paid, showing duplicate debts, listing debts that are past the age limitations and listing ones that were never yours to begin with. A creditor must verify a debt within 30 days of the dispute. If they can’t, it’s taken off.

Build Up

A lack of negative entries on your credit report is not enough. You also need to show a history of using credit wisely. Your credit repair company can walk you through this process. You build up new credit by opening new credit cards (using secured cards if necessary) and opening installment loans like car loans. It’s good to show a mix of types of credit when you are building up your score. Be careful about opening too many accounts at once. Each hard inquiry temporarily lowers your score. And, if creditors see too many inquiries at once, they can think you are in financial trouble and trying to get money fast. By picking out the types of new credit accounts that will best suit your needs, you can use them to start building up your credit within weeks.

Pay Up

Nobody likes this part, but, the unpaid debts on your credit report that are deemed valid must be paid. This comes after the clean up process because you’ll know what debts are not going away any other way than paying or letting them age enough to fall off your report. The good news is, you will probably not have to pay the full amount on many, if not most, of the unpaid debts on your account. Collection agencies buy old debts for pennies on the dollar. If they manage to collect half the original debt, they are still making a phenomenal profit. Many experts recommend starting with an offer that is as low as one-quarter the original amount. Also, the offer made should be for “pay for deletion.” If that condition is granted, the collection will disappear from your credit report completely.

Repairing your credit takes time. Sometimes the process can seem tedious. But, the effort that goes into it can pay off in the ability to buy a home and enjoy your part of the American dream.

Debt Consolidation – What is it?

Yes, there are many misconceptions out there about what debt consolidation is. For example, many think it involves the likes of credit counseling or debt settlement, but that’s not the case. So just what is ? It’s simply the act of taking existing debt and paying it off with a new loan with one monthly payment.

Benefits

Now that you know what it is (and what it is not), let’s take a look at some of the major benefits of it, of which there are several. These include:

Easier to manage: Because all of one’s existing debt will be consolidated, payments are generally much easier to manage. That’s because instead of making payments to several lenders, you now only have to worry about making one monthly payment to one lender. Remember, one of the largest factors in your FICO score is making payments on time. Debt consolidation makes this a whole lot easier to do.
Lower interest rates: It’s is especially helpful if you make high interest payments to lenders. One of the goals of a successful program is to do it with one, new lender at interest rates that were lower than with previous lenders. That’s when consolidating debt is really, truly worth it. This helps you save money in the long run and, ideally, pay off the amount more quickly than you would have before.
No negatives to your credit score: As we noted earlier in this post, many people confuse debt consolidation with debt settlement. Debt settlement is the act of negotiating a reduced balance payment amount with lenders to settle outstanding money owed. It also can take a hit on your credit score if you have to come to that. Debt consolidation is simply combining several payments into one monthly payment, ideally at one overall lower interest rate. As long as you make the one monthly payment on time, it won’t impact your credit score.

Now that you know about it, think about whether or not you may be a good candidate for it. If you have several, smaller loans that you’re paying off at high interest rates and believe you could consolidate them into one, cheaper monthly payment, then it’s time for you to take a hard look at this option. While debt consolidation doesn’t eliminate debt, it can help people feel more confident and at ease about their financial situation based on the money that they’re ideally saving from achieving a lower interest rate. At the same time, however, it’s important for individuals who go the debt consolidation route to be cautious not to take out any more debt before the consolidated loan has been paid off. If that’s the case, then the cycle will just start all over again.

Credit Agency Response Period – How Long Do I Wait?

The credit bureaus are somewhat of a lifeline to your credit score. They’re also the entities that you need to take up errors on your credit report with. It’s estimated that as many as one out of every three Americans has an error on their credit report, errors which can negatively impact one’s score and purchasing ability. However, it’s possible to dispute negative items or errors on a credit report, a process that consists of corresponding via mail.

But just how long does it take to hear back from the credit bureaus on such issues? Here’s a timeline of what you can expect for the credit agency response period:

Credit Agency Response Period – How long does it take?

After your initial mailing, you should initially hear back from the credit bureaus within a couple of weeks. However, this initial response is usually not a resolution to the issue you presented. Generally, it’s more of a confirmation that they’ve received your correspondence and are investigating the matter. (You might also choose to send the letter with a return receipt requested so you can confirm that it was received.) It’s worth noting that a credit bureau has to respond to your inquiry within 30 days, or they must remove the negative item listed, per Fair Credit Reporting Act regulations.
A credit bureau’s investigation cycle, including mailing of the findings, usually takes about 45 days.

While you certainly want the credit bureau to respond informing you that they’re investigating your dispute, that’s not always the case. They may also respond citing your dispute as frivolous or irrelevant, or send you a rejection letter.

As you can see, getting a negative item from your credit report removed is not something that happens quickly – these things take time. So if you believe that there’s an error on your report that will raise your credit score enough so that you qualify for low-interest financing following removal, be sure that your expectations match reality. You can’t dispute the item one day and then apply for a mortgage or car loan the next and expect things to have been sorted out. Hence, be sure that you periodically check your credit report so that you can sniff out errors sooner.

Credit Tips – That Aren’t As Useful As You Thought

It seems like everyone has advice for how to improve your credit score. But it should go without saying that not all of this advice is good advice. In fact, some of the suggestions that people have are more likely to hurt than help your credit score. Needless to say, there’s a lot of misconception out there about the best ways to up your score. Here’s a look at some of those tips that you should stay away from:

Credit Tips that Aren’t as Useful as you Thought

Lower credit limits: Some people think that simply asking for a lower credit limit can help reduce debt. While that’s true, you must also keep in mind that part of your FICO score is based on how much you owe compared to your credit allotment. For a good credit score, you need to keep debt at or below 30 percent of your total allotment. But if you lower your credit limit to $3,000 and max it out, it won’t do your score any good.

Pay off installment loans: Don’t focus too much on paying off installment loans early – it can actually drop your debt load – and possibly your available credit. Instead, focus on paying off credit cards.
Open lots of credit cards: To get more of a credit allotment and increase utilization ratio, many people think that opening up several new credit cards at once is the answer. It’s not – it can actually hurt your credit score due to the multitude of inquiries for new cards.
Settling debt: It’s always a good move to settle any outstanding debt with lenders, preferably for less than you owe. However, many people make the mistake of doing so and not ensuring that a written report is filed that states the debt was “paid in full.” Make sure all debts – even if they’re paid – aren’t listed as “settled.” It can hurt your score.
Pre-paid debit cards can help build credit: They can’t – they have nothing to do with helping you build your credit score. A secured credit card, however, can. This works similar to a debit card.
Never use your credit cards: Never using your credit cards can’t hurt your credit score, right? Wrong – part of your credit score is dependent upon credit history and knowing you’re making on-time payments, so you’ve got to use them. It’s better to charge small amounts and pay it off each month than to never use your credit cards.
Credit repair firms are helpful: While this is true for some firms, it’s not true for others. That’s because while there are a lot of qualified and credible credit repair firms out there, there are arguably just as many unethical ones that may attempt to repair your credit via identity theft or some other illegal manner. Beware!