3 key housing issues real estate professionals, consumer advocates and entrepreneurs hope the president and Congress resolve in 2013

1. Clearly identify for mortgage lenders what qualifies as a 'qualified mortgage' and thus allow them to lend with confidence. (Not all but many of the challenges in lending stem from this uncertainty.)
2. Extend the mortgage forgiveness debt relief act of 2007- this tax exemption has encouraged appropriate settlements and removing this exemption would discourage recovery.
3. Reform the GSE's, primarily, 'Fannie and Freddie'. So much of the run up in false home values has now been statistically traced back to these corporations and their powerful influence on the housing climate in the United States.

3 Common Misconceptions About Negative Credit Reporting and Timing

Misconception #1

The statute of limitations regarding credit reporting and barring collectors from suing to collect debts are the same.

Correction: Incorrect.

The two statutes of limitation have nothing to do with each other. For example, if you defaulted on a debt in California, the collector cannot sue you after four years have elapsed.

However, the item can still be reported to the credit reporting agencies for seven full years. That means the collection will become a “time barred” debt a full three years before it can no longer be included on a consumer credit report.

Misconception #2

If I make a payment on a defaulted debt or collection, I’m restarting the 7-year credit reporting time frame.

Correction: Incorrect.

The 7-year clock begins at a very well defined point in time relative to the original debt. Credit reporting can occur for no longer than seven years from the date the original debt was charged off (or subject to a similar action).

That means you can make payment after payment after it has been charged off or sent to collections and the date from which the counter begins cannot be updated to be any more recent.

FYI: There are exceptions to this rule for defaulted student loans.

Misconception #3

If a creditor sells a defaulted debt to a debt buyer or collection agency, the buyer can report the collection to the credit bureaus for seven years from that time.

Correction: Re-Aging

Re-aging, in the credit reporting world, is when a creditor or collector changes the date from which the 7-year credit reporting period begins to make it more recent, thus causing an item to remain on a credit report longer than the seven years allowed by Federal law.

Possible Cause of Credit Limit Reductions or Account Closures

There are many reasons why the credit card issuer may have taken an adverse action against you.

1. Credit Score Related – Credit score falls below minimum score threshold. Action could be based on how far below the threshold the consumer falls.

2. Credit Data Related – A new delinquency hit the credit report; a new inquiry hit the credit reports; a new credit card hit the credit report; the consumer increased the amount of debt he or she is carrying; the consumer's credit card utilization increased on one or all cards.

3. Geography and Economy Related – Consumer lives in an area where home values have descended (no equity). Consumer lives in an area where the unemployment rate is disproportionately high.

4. Issuer Related – Issuer determines that your account cannot remain profitable under current terms

How long will the items get reported on my file?

• Delinquencies (30–180 days): Can remain seven years from the date of the initial missed payment.

   

• Collection accounts: Remain seven years from the date of the initial missed payment that led to the collection (the original delinquency date). When a collection account is paid in full, it will be marked "paid collection" on the credit report.

• Charged-off accounts: Remain seven years from the date of the initial missed payment that led to the charge-off (the original delinquency date), even if payments are later made on the charged-off account.

• Closed accounts: Closed accounts are accounts that are no longer available for further use. Closed accounts may or may not have a zero balance. Closed accounts with delinquencies remain seven years from the date they are reported closed, whether closed by the creditor or by the consumer, but the delinquency notation will be removed seven years after the delinquency occurred when pertaining to late payments. Positive closed accounts remain ten years from the closing date.

• Lost credit card: If there are no delinquencies, credit cards that are reported lost will continue to be listed for two years from the date the card is reported lost. Delinquent payments that occurred before the card was lost are reported for seven years.

• Bankruptcy: Chapters 7, 11, and 12 remain for ten years from the filing date. Chapter 13 remains seven years from the filing date. Accounts included in bankruptcy will remain seven years from the date they were reported as included in the bankruptcy.

• Judgments: Remain seven years from the date the judgment is filed.

• Liens : City, county, state, and federal tax liens. Unpaid tax liens remain fifteen years from the filing date. Paid tax liens remain seven years from the paid date of the lien.

• Inquiries: Most inquiries listed on your credit report will remain for two years. Some inquiries, such as employment or pre-approved offers of credit, will show only on a personal credit report pulled by you.

What is a Fraud Alert?

A fraud alert is a message placed on your credit reports alerting any lenders or parties that access your credit file the beware that the application they’re processing might be fraudulent.  You can place a fraud alert on your credit report, if you suspect that you are a victim of identification (ID) theft. ID theft is when someone uses your name, Social Security number, date or birth and/or other information without your permission to open a credit card account, loan, or bank account.  This could be the result of lost or stolen credit cards or wallet or through the internet, etc.  This alert is to let companies accessing your credit report they need to take certain precautions.

If you are a victim of ID theft, you should immediately contact your creditors and also contact one of the three major consumer credit reporting agencies – Equifax, Experian or TransUnion. Place a fraud alert on one of your credit files, and that credit bureau will contact the other two to have the alert placed on there as well. The contact can be by phone, mail or through the internet.  Placing the alert is free.  You will receive a confirmation when the alert has been added to your credit report, which is usually within 24 hours. To cancel an alert you will need to contact the credit reporting agencies in writing.

There are three types of fraud alerts: Initial, extended and active duty.

Initial fraud alert – You can place this alert on your credit report, when you suspect that you may be a victim of fraud. You don’t have to be a victim of fraud to use this alert. It stays on your credit report for 90 days and then it’s removed.  Creditors should take procedures to verify that you have authorized the opening of a new account, an increase of your credit limit on an existing account, or a request for a new card on an existing account. When the alert is placed, you can get a copy of your credit report free at each of the three national credit reporting agencies. You can also request that only the last four digits of your Social Security number are displayed on your credit report.

Extended fraud alert – An extended fraud alert is for placed on your credit report for seven years, when you have evidence that you are a victim of ID theft or fraud. In order to do so, you must write one of the three consumer credit reporting agencies, provide a valid police report proving that you are a victim of identity theft and give daytime and evening phone numbers.  This requires the creditors to verify your request to be alerted by phone when someone tries to open a new account in your name.

Active Duty Alert – This is for those on active military duty who are away from their usual duty post. It is similar to the initial fraud alert. It is for one year and removes your name from pre-screened credit offers for 2 years.

You should be aware of the following regarding fraud alerts:

• It is more difficult to get credit when you place a fraud alert.
• It can delay your ability to get credit.
• It does not prohibit creditors from extending credit; it just gives them procedures to follow to verify your identification.
• It does not prohibit companies from viewing your credit report or granting you credit.
• The lenders or companies viewing credit reports with a fraud alert need to verify that you have authorized this activity on the account.
• The alert depends upon the credit reporting agencies placing the fraud alert on the file and the lender or company reviewing the credit file to follow procedures.

Do Interest Rates Impact my FICO Scores?

First things first…if something is not on your credit reports then it has no direct impact on your FICO scores. Credit bureau scores only take into account items that are actually on your credit reports. So, things like interest rates, whether you pay in full or you “revolve” a balance from one month to the next, if you pay early or just by the due date, how your account was acquired, how much your annual is, and how much you pay in other fees are not going to have any direct impact on your scores.

Historical balances are an interesting one because you’d think that they would, in fact, be considered by credit scoring systems. You’d be wrong though. The credit reporting agencies do not maintain what’s called “time series data” in such a way that it can be fed into a credit score. So, regardless of what your balances were 2 months ago…what counts is only what’s on your credit file as of today.

Conversely, the monthly payment amount is on your credit reports (unless the lender chooses to not report is). But, despite the fact that your monthly payment amount is on your credit reports it is not considered in your FICO score.

Making Sense of Authorized Users

An authorized user is someone other than the account holder who can be added to a credit card account in a legal practice called “piggybacking.” 

 

If you have poor credit, having yourself added as an authorized user to the account of someone with a high credit score, low account balance and high credit limit, can improve your credit scores in a couple of ways. To begin with, the positive credit activity will begin appearing on your credit reports, making a positive impact on your FICO scores.Additionally, the new credit line will increase your available credit and, at the same time, lower your debt ratio which can further improve your credit scores.

Credit bureau reaction

This practice attracted the attention of FICO as well as the three credit bureaus and resulted in the “FICO 08″ scoring model which was designed to ignore authorized user accounts when calculating credit scores. But FICO 08 also caused a problem. According to FICO, the government informed them that ignoring authorized users would obstruct FICO’s compliance with the Equal Credit Opportunity Act, Regulation B – a rule that requires lenders to consider shared accounts of spouses when determining a married person’s credit risk. By ignoring these accounts, FICO 08 would be in violation of Regulation B.

According to FICO, it has since adjusted the formula of FICO 08 to include authorized users while reducing the impact of piggybacking. This means that as it now stands, authorized users continue to be included in FICO’s formula.

Piggybacking issues

If, for some reason, the account holder is either late or misses one or more payments, the credit scores of the authorized user will also be affected.