June 25, 2018

Tiny, Hidden Credit Report Errors Can Lead to Bankruptcy

Credit reporting mistakesThe Wall Street Journal recently published a new story entitled Hidden Medical Debt Trips Up Homeowners. The report documented several cases in which small medical bills that had been turned over to collection resulted in a more than 50 point drop in a homeowner’s credit score.

In one situation, a homeowner attempted to refinance his mortgage, only to discover that two unpaid medical bills totaling less than $50 had caused his credit score to drop.  As a result of the lowered credit score the refinancing bank demanded over $4,000 in closing costs.

In another situation, less than $500 of medical debt reported to a collection agency disqualified a homeowner from a favorable interest rate, which would have resulted in tens of thousands of extra interest charges.

In many of these situations, the consumer never knew about the unpaid medical debt – the provider simply turned the claim over to a collection agency which immediately reported it to the credit reporting agencies as delinquent debt.

According to the Journal, “otherwise well-qualified borrowers with good loan-to-value ratios and steady employment are increasingly finding it difficult to refinance because of medical billing mistakes marring their credit.”

If you or a loved one has been in the hospital, you probably know that a single visit can result in five, ten or even more bills from separate vendors – the hospital, the hospital pharmacist, the anesthesiologist, the ambulance service, etc.  I do not find it surprising at all that a patient would not know about one or more bills. [Read more…]

Bad Credit Score Results in Higher Insurance Rates

This past week the U.S. Supreme Court heard oral argument on an interesting Fair Credit Reporting Act issue.  In the case of Geico vs. Edo, the Supreme Court will be deciding whether insurance companies can be liable for punitive damages if they fail to notify customers that the customer’s credit score has led to higher rates.

Regardless of what the Supreme Court does, I think that the bigger issue for consumers relates to how insurance companies use your credit history in setting the price that a consumer pays for auto or homeowner’s insurance.

According to  the AJC, drivers with the worst credit histories will pay almost double the price paid by a driver with very good credit.  However, Georgia law permits the insurance companies to keep secret the formulas they use to decide what credit factors impact insurance premiums.

All of this begs the question of what relevance bad credit has on a driver’s likelihood to be involved in an accident.

If you thought that a bad credit score only affected your ability to finance a house or a car, think again.  Even if you are not using credit, your cost of insurance will be affected by a bad credit history.

This credit score/insurance cost link serves as yet another reason for you to check your credit reports at least once a year.   Since most credit reports have some errors, there is a good chance that you can improve your score simply by challenging these errors and demanding that the credit reporting agency remove the mistakes from your report.

Post Bankruptcy Credit Rebuilding Meeting With Jonathan

This morning, I met with one of my former bankruptcy clients who wanted to discuss credit restoration. I thought it might be relevant to this blog to discuss what we found on her credit report and what I advised her to do.

My client brought me a copy of her Equifax report for review. The credit report showed that most of the debts included in her Chapter 7 had the indicia “included in bankruptcy” with a zero balance and no reference to any late pays. So, it appears that in most cases, bankruptcy has the effect of wiping out credit report references to outstanding debt as well as references to late pays. This is important because late pays are a major cause of credit damage. I was actually somewhat surprised to see that the late pays were deleted.

There was one account that we had included in the Chapter 7 that was still showing as an outstanding debt. This is obviously a mistake and I drafted a “challenge letter” disputing this account balance and the associated late pay.

There was one account that had the “included in bankruptcy” indicia but had the late pay information. I drafted a “challenge letter” disputing the late pays.

There were three student loans that had late pay references. There was one 60 day late and two 30 day late pays. I encouraged my client to make every effort to tender all student loan payments timely. I also drafted a “challenge letter” disputing the late pays.

My client wanted to know what she could do to re-establish credit. I suggested that she look into getting a gasoline credit card or a department store card. Unsecured credit that is properly managed is the quickest way to improve one’s credit score.

Finally, I noted to my client that we only had the Equifax report on hand and that she needed to request credit reports from Experian and Trans Union.

My client advised me that she and her husband hoped to be able to qualify for a house within the next year. I suggested that she contact a mortgage broker for more information about rates and credit scores in the current market.

Interestingly, my client advised me that her husband, who did not file bankruptcy, but participated in a payment plan with his creditors, actually had a lower credit score than she (the bankruptcy client) had. Interesting.

The bottom line is that we found one definite error and several areas ripe for challenge.  I hope and expect that we can increase her credit score by 100 points within the next few months.

I will update this blog entry as we see what effect the challenge letters and my advice will have.


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