Friday, March 30, 2012
Wednesday, March 14, 2012
Problems with Mortgage Companies' Credit Reporting
Mortgage loan companies and mortgage servicing companies do not always accurately report on consumers' credit history after such events short sales, foreclosures, and payment modification plans.
In a short sale a lender allows the home owner to sell for less than the amount owed on the mortgage. Effective July 15, 2011, an owner selling a house or apartment building with four or fewer units in a short sale will not owe the lender a deficiency balance (Civil Code Section 580e). Therefore, after a short sale, the lender should not report the consumer owes any money on the mortgage loan.
If a purchase money lender forecloses on four or fewer units, the lender may not seek a judgment for the deficiency balance. Civil Code Section 580b. This law applies to both 1st and 2d mortgages. Any post-foreclosure report to the credit bureaus should make clear that the former home owner is not subject to a lawsuit and judgment. A report that a debt of $100,000 (the deficiency balance after foreclosure) is “due and owing” is misleading because the lender has no recourse to the courts to collect the $100,000.
Under the Home Affordable Modification programs, a lender typically agrees the consumer may pay less on the mortgage during a trial period. Under these programs, if the owner was current on the mortgage payments before entering into the program and makes the required reduced payments during the trial period, the lender may not report late or inadequate payments to the credit bureaus. Once a permanent modification plan is in effect, if the owner makes the required mortgage payments, the lender may not send adverse reports to the credit bureaus.
Tuesday, March 6, 2012
Credit File vs Credit Score
I tell people to focus on credit reports over credit scores because there are simply so many scores out there. Among generic models, there is the VantageScore model and multiple FICO models.
Each credit score model may differ in terms of the weightings of certain factors or how it is constructed. For example, a model might place a greater emphasis on the balance of your credit card. Simply, “your credit score” is not just one score.
However, all the credit scores come from one place: your credit file. So rather than comparing your various credit scores all the time, it’s more productive to make sure the information in your credit file is up to date and accurately reflects your prudent debt management steps.
Yes, credit scores do matter. They are an important part of our financial well-being and having a good credit score can literally save you thousands of dollars over the course of a loan. Plus, having a “directional” idea of your credit score can be useful, especially if you are going to apply for a loan in the near future.
ScoreWell Credit specializes in educating you on your credit file, coaching and providing you with accurate information and most importantly…… removing outdated, unverifiable and incorrect data on your report.
Tuesday, February 28, 2012
Mortgage Debt Forgiveness
Issue Number: IRS Tax Tip 2012-39
Mortgage Debt Forgiveness: 10 Key Points
Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012.The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness:
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
Monday, February 13, 2012
How Does Closing An Account Impact A Credit Score?
A common mistake made by individuals who what to increase their credit scores is to cancel credit cards that are either not in use or have an high annual fee. The problem is this…closing credit cards can lower your credit scores, instead of raising it.
Your current and past credit history – Closed accounts are also used to determine your credit scores. Even though this account is closed, it contains information on how you have paid this bill in the past as well as its age. If you have been late in the past, this will be considered in the credit score, but so will paying on time. This closed account is no longer considered active and is not evaluated for current payments, only historical.
There’s a better way – If you don't want to use the card or cards any longer then that’s fine. My advice is to remove any cards you don't want to use from your wallet. If you owe money on any, pay them off as soon as possible. If you don't owe anything on them, use them at least once every 90 days for a very small charge. Make sure you pay them in full when the bill arrives.
Your current and past credit history – Closed accounts are also used to determine your credit scores. Even though this account is closed, it contains information on how you have paid this bill in the past as well as its age. If you have been late in the past, this will be considered in the credit score, but so will paying on time. This closed account is no longer considered active and is not evaluated for current payments, only historical.
There’s a better way – If you don't want to use the card or cards any longer then that’s fine. My advice is to remove any cards you don't want to use from your wallet. If you owe money on any, pay them off as soon as possible. If you don't owe anything on them, use them at least once every 90 days for a very small charge. Make sure you pay them in full when the bill arrives.
Thursday, February 9, 2012
Thursday, February 2, 2012
How Do The Credit Bureaus Know What Data to Put on My Credit Reports?
Credit reports are compiled from data derived from thousands of sources. Proprietary matching logic has been developed by each of the bureaus, so that credit and public record data can be applied correctly to each consumer credit file.
What we know is the matching logic includes name and address information. Because of this you can see how consumers with similar names and addresses could have incorrect information on their files. For example, people with the same name except for the suffix (i.e. Jr. or Sr.) and live in the same household could result in a matching error. John Smith, Jr. and John Smith, Sr. who live at the same address could have the same accounts reported on their credit reports. It is not uncommon for those employed in the credit industry to avoid giving their children names with Jr. and Sr., because of this. The end product could be what’s called a “mixed credit file.”
Credit report errors can occur because of the matching logic and incorrect information reported by data suppliers. You may find incorrect information such as accounts, loans, collections or public records you never had, or incorrect payment history. You definitely want your credit file to accurately represent your credit information. Negative data can harm your credit and prevent you from getting a loan or cost you more to borrow money.
What we know is the matching logic includes name and address information. Because of this you can see how consumers with similar names and addresses could have incorrect information on their files. For example, people with the same name except for the suffix (i.e. Jr. or Sr.) and live in the same household could result in a matching error. John Smith, Jr. and John Smith, Sr. who live at the same address could have the same accounts reported on their credit reports. It is not uncommon for those employed in the credit industry to avoid giving their children names with Jr. and Sr., because of this. The end product could be what’s called a “mixed credit file.”
Credit report errors can occur because of the matching logic and incorrect information reported by data suppliers. You may find incorrect information such as accounts, loans, collections or public records you never had, or incorrect payment history. You definitely want your credit file to accurately represent your credit information. Negative data can harm your credit and prevent you from getting a loan or cost you more to borrow money.
For these reasons, it is important for you to review your credit report for errors.
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