Delete Collection Accounts

Getting a home mortgage loan or refinancing an existing loan calls for a clean credit report. Banks simply will not give a mortgage to someone with collection accounts on their credit report. And, sometimes these collection accounts can be a big shock to the prospective home buyer. Who knew the account was even there?

In California, the statute of limitations for an unpaid collection account is four [4] years. It seems, though, that  creditors have come up with some creative ways to keep collection accounts going. Sometimes, the debt is sold to another credit company, thus re-activating it or sometimes it is simply transferred to another division of the same company with a different name. Both gambits are done with the hope of resurrecting these debts.

This can have a major impact on the consumer’s credit score, sometimes as much as 30 points. This is, of course, of major concern when applying for a home loan. All collections must be paid or the bank will not grant the mortgage. If collection agencies realize that a debtor is trying for a home loan, then they will definitely play hardball and expect to get the entire amount of the debt paid with additional fees added.

So, what to do?

Thanks to a recent court case, the 9th Circuit held that the Federal Debt Collection Practices Act requires substantial activity by the debt collector before a debt can be considered valid. Specifically, for a debt to be valid the collection agency must send a notice to the debtor within 5 days.This is true if it’s the first collection agency, one of many or a subsequent one.

Of course, people often don’t even realize they have collections because collection agencies rarely send out these “validation notices.” Now, the collection agency must inform the debtor of the total amount of the debt and to whom it is owed and this must be in writing within 5 days. Furthermore, the agency must inform the consumers they have 30 days in which to dispute the debt.

When the consumer disputes the debt or any part of it, the agency must supply a copy of the judgment or verification of the debt. Previously, knowing the consumer wanted to buy a house, the agencies would simply insist on payment until either the home buyer gave up the quest for a house or paid the loan.

Now, there is some protection for the home buyer with a collection account. If you discover a collection account on your credit report, it is only valid if you have received notice of it from the collection agency in writing and you may still dispute the account. If the collection agency refuses to back down, yes, you will have to hire an attorney, but a simple letter may do the trick.

Marriage & Your Credit Score: Q & A

wedding credit cardIt’s that time of year again. Spring is here, so the annual rush to the altar can not be far behind.

But wait. Have you checked what this marriage will do to your credit score? As a couple you may want to purchase furniture, a car or even a house. For that, you will need good credit. How you handle your credit after marriage can have a big effect on your future plans.

Won’t our credit will automatically merge after marriage?

Most people think that credit is automatically joined as soon as you tie the knot. NOT TRUE. In fact, assuming both parties to the marriage already had credit scores, these will continue to exist separately UNLESS the couple applies for a car loan, say, jointly or a credit card jointly.

My spouse defaulted on a loan. Will my credit score be damaged?

Actually, whatever your spouse has on his or her credit will have no effect on you at all UNLESS you apply for credit jointly. This means if one spouse has good credit and the other bad, it is imperative to keep them separate. That way if the spouse with the good credit can qualify alone, then he or she can buy a car or a house for the couple using his or her good credit alone.

We both have good credit, so we can merge our credit., right?

This is true EXCEPT it is always a good idea for each spouse to keep some credit in his or her name alone. That way if something happens to the other spouse, a job loss, for instance, the entire credit of the couple will not be damaged.

My spouse works and I stay at home.  Shouldn’t my spouse have the credit?

Again, NO. Think about it. If your spouse dies or loses his job, then the entire credit of the family could be lost. Always keep at least some credit separate.

Merged Credit After Marriage v. Separate Credit

Merged Credit After Marriage

Think of it this way. Let’s say you and your spouse Bob decide to buy a car. You apply for the loan jointly and start enjoying the car and making the payments. Then, Bob loses his job and the bills pile up. You both realize you really cannot manage that car loan, so you let it go. The car loan goes into collection and eventually the car is repossessed. Now both your and Bob’s credit is ruined and your family has no more access to credit.

Separate Credit After Marriage

Here’s another scenario. Jack and Jill keep their credit separate. Jack buys a new car on his own and makes the payments until he loses his job. Then, the couple sits down and figures out that they can pay their bills for a few months of unemployment, but after that no. So, after a few months they stop paying on Jack’s new car and credit cards and pay only debt in Jill’s name. Jack’s credit is trashed, but Jill’s remains the same. That way at least the couple still has access to credit during their time of need. Of course, they could also decide to pay all the bills in Jack’s name instead of Jill’s name.

The important thing is to keep someone’s good credit. Do that by keeping some credit separate.