The question is: DOES MAKING A PARTIAL PAYMENT ON THE MORTGAGE HURT MY CREDIT SCORE?

The answer is: IT COULD.

Usually a late payment on any account gets reported on the credit report when a monthly payment has been skipped.  This shows up as a 30 day late payment.   NOTE: A payment that is past the due date by a few days or even two weeks is generally NOT reported to the credit bureaus as late.

Sometimes a partial payment is not considered a full payment by the company receiving it and they report it as a late on the credit report.  If two months go by with just a partial payment, not paying the full “amount due” on the statement, it CAN show up as two consecutive late payments and may be reported as two 30 day lates or a 30 and a 60 day late.  It just depends on how the mortgage company decides to report it to the credit bureaus. 

Another thing to consider is that it is very common for loan servicing companies and lenders NOT to accept partial payments.  Because anything less than a full payment amount can be considered as contractually not serving the obligation, the partial payment may be returned to the sender or it may be held as “pending”, waiting for the rest of the payment.   Additionally, when the lender receives a partial payment, they decide what to apply it to.  They may see the insurance and taxes as an important item to preserve their collateral, the house, and decide to put the partial payment into escrow, applying nothing toward the loan balance or interest.   An unaccepted partial payment will result in a late payment on the credit report.

Payment history is the number one factor in credit scores.  One late payment, when the rest of the credit report is unblemished, can cause a dramatic drop in credit scores.  So before you stop payments or send in partial payments, communicate with your lender.  Be sure to look at all options that help your financial situation now, and into the future.

You can read more about Short Sales and their impact on credit scores here.  The Federal Trade Commission also has consumer information available on this topic.

Many people want to know what they can do to get higher credit scores.  What's the best thing to do to help scores?  Pay all your bills on time.  Every time.

The #1 factor in the FICO score is Payment History. 
A late payment shows up on credit reports when it is more than 30 days past due.  So when a monthly payment is missed, it typically is reported on the credit reports.  If two payments in a row are missed, then there is a 30 day late and a 60 day late on the credit file.  If three monthly payments in a row are missed there would be a 30, 60 and 90 day late reported. 

NOTE:  A late payment of a few days or even two weeks is usually NOT reported to the credit bureaus.  The consumer will likely have to pay a late payment fee and may incur higher interest rates on the account as a penalty, however payments more than 30 days late are what get reported.

LATE PAYMENT IMPACT
A 60 day late is more detrimental than a 30 day; a 90 day hurts scores more than a 30 or 60.  Recent late payments have more of a severe impact on credit scores than an older late payment.  Example: a 30 day late reported in the past six months can hurt scores more than a 90 day payment listed five years ago.

WHAT TO DO

It is not too late to start.  Make all your payments on time or even early.  Mark your calendar or planner, develop a bill organizing system that works for you and your budget.  If you had some late payments in the past, don't think you're doomed forever.  They stay on up to seven years however the negative impact diminishes as time goes on.

If your payment is late, contact the company to ask what impact it has on your account.  Ask if it is reported to the credit bureaus.  If you had extenuating circumstances, explain them and ask for a supervisor that can make adjustments to interest rates, fees, etc. if needed.  Be sure to write down the date and time of the call, the person's name and what they told you.  Then do a credit report check in two months to be sure it is NOT reported as they said it wouldn't be.  If there is a problem, you'll have all of your notes to work with to get it corrected.

Beware that items that don't normally get reported on credit reports such as library fines and utility bills that are not paid in a timely manner can actually show up on credit reports as collections.  So again, it is best to pay all bills on time, every time.

If you have questions on your credit report and how things are reported on it, we are here to help.  Our individual consulting services have assisted in the correction of thousands of credit report errors, including inaccurate late payments.  Contact us today for more information.

If someone files BK in June, it typically takes a few months for the process to be completed and discharged, if it's a Chapter 7; or for the repayment plan to be confirmed, if it's a Chapter 13.

A common error that we see on credit reports is that the creditors, the companies that the consumer has accounts with, report 30, 60 and even 90 day late payments to the credit bureaus after the BK was filed.  Because the BK filing results in an automatic "stay" (stop) of most collection actions against the consumer, the last payment that could be listed on a credit report would be in the month the filing took place.  So the person who filed in June, should have no further late payments  after June listed on accounts included in the BK.

NOTE: In a Chapter 13 repayment plan, late payments made to accounts after the plan is in effect can result in marks on the credit report as well as violations of the BK agreement.

WHAT TO LOOK FOR
A previous article lists steps to take after you file bankruptcy to be sure your credit report is accurate.  This is important to rebuild a positive credit rating as quickly as possible.

The specifics that are talked about in this article are late payments after the BK filing date.

1) Get a no-cost copy of your credit report.  It doesn't matter which bureau it's from.  Follow this link to get the free report you are entitled to annually.

2) Use a colored highlighter to mark ALL late payments, and all accounts listed as "Included in Bankruptcy", and any 'Charge Off' or collection accounts.

3) Have a copy of your official BK papers showing which accounts are included in the BK.  Check the list against the credit report to be sure it matches and no accounts on the credit report were missed.

4) Now check those same accounts to be sure that there are no late payments listed in any month after the BK filing date.  If so, highlight them with a different color to indicate an error that you will dispute with the credit bureaus.

5) Check those same accounts again to confirm that none of them were listed as a Charge Off after the BK filing date.  Remember, this is very common and it adds more negative hits to your credit rating.  Again, highlight with a different color to indicate an error.

6) Look at any accounts on the report listed as a collection.  If they were in the BK, they should have zero balance.  By the way, that goes for ALL accounts listed in a Chapter 7.  Chapter 13 accounts will continue to have balances throughout the repayment plan.

If there is a collection item recently added to the credit file for an account included in the BK, mark it as an error.  You will want to contact that company directly as the first step to get that item corrected on your credit report.

7) Write dispute letters to ALL THREE credit bureaus, even though you only reviewed one report.  Chances are that most accounts are listed on all three and you will then get an updated report from all of them to do another accuracy check. 

Include copies of your discharge paper or repayment plan along with the schedule showing which accounts were included in the BK.  Request that the late payments and/or charge off designations added after the filing date be removed from your file.  You may need to send letters to the companies that are reporting it, too.  Keep copies of everything for your records.

7) Check your reports again in 3-4 months.  Do the same process again to be certain your credit file is accurate.  Then follow a smart, effective Credit Building Plan to regain your credit rating.  Even though the BK will stay on your credit report for up to ten years, most people re-establish their credit within 2-3 years.

You can contact us for information about our services that are specific to those in bankruptcy.  Our clients appreciate the step-by-step plan to start fresh and do their credit rebuilding well.

Universal Default is a term for a practice used by the financial services industry.  This practice consists of a lender changing the terms of a loan from the original terms to default terms when that lender finds out that their customer has defaulted with another lender, even if that customer was not in default with the first lender.  Traditionally, the default terms and interest rates, sometimes up to 30%, apply to customers who have missed payments on their loan or account. 

This practice began in the mid-1990s with the increased deregulation of the credit card industry.  Now about half of all banks that issue credit cards include Universal Default terms in the fine print.  However, since the practice started, most credit card companies have not regularly enforced these terms.  Remember, these are not typical times and things are changing.

In 2007, Citibank became the first bank to voluntarily eliminate its universal default provisions with some other card issuers following suit.  However, the move did not give Citi the competitive edge it had hoped for and in the summer of 2008 the New York Times ran an article about the possibility of Citibank re-instating it. 

WHAT IT LOOKS LIKE
The Universal Default Language may not be easy to identify in all the small print of the credit card terms and is not usually given the “Universal Default” title.  It may appear as some version of this:
We may change the rates, fees and terms of your account at any time for any reason.  These reasons may be based on information in your credit report, such as your failure to make payments to another creditor when due, amounts owed or the number of credit inquiries….

WHAT TRIGGERS IT
SAME ACCOUNT: Late payments, bouncing a check sent in for your payment, or going over your credit limit can all trigger default terms on your credit card account as standard operating procedure in the financial industry.

WHAT TO DO
1) Make all payments for ALL your bills on time to reduce the risk of qualifying for the Universal Default.
2) Keep credit balances under half of the credit limit.  This has the added bonus of helping your scores.
3) Monitor your credit report regularly.  Make sure there are no errors which could trigger the Universal Default.
4) If your interest rates go up, call the credit card company to find out why and request that your previous rate be re-instated.  NOTE: This may not work as financial institutions are looking for revenue from all angles.
5) Pay off the higher interest rate accounts as soon as possible to help your budget.
6) Don’t close the accounts when they are paid off.  Order your Personal Credit Building Plan from us as part of your Credit Analysis to learn how to use your credit accounts as effective credit building tools.

Having an accurate report as soon as possible will help your credit rating get back on track.  The following are important steps to start getting better credit scores after bankruptcy.

1) Check your credit report.  You can do this at no charge and it won’t count against your score; click here for more information on how to do it.  For Chapter 7 and Chapter 13 BK, check your report 2-3 months after you receive the official discharge notice. 

2) Make sure the status of the BK is listed as “discharged”.  This will be in the Public Records section of your report.  If it is still listed only as “filed’, you can send a copy of your discharge paper to the credit bureaus to address the inaccuracy.

3) All accounts that were included in the Chapter 7 or that were paid off in the Chapter 13 should have a ZERO balance and no past due balance listed.

4) All accounts included in the BK should not have late payments after the filing date.

5) Derogatory information such as late payments, charge-offs and collections, that is reported on individual accounts that were included in the BK, should be removed after 7 years, even though the BK can remain in the Public Record section for up to 10 years.

6) If an account was NOT in the BK but is listed as such on your credit report, you can send a copy of the Schedule from the BK papers showing which accounts were included.  Open and closed accounts in good standing are an important part of rebuilding credit.

It is expected that bankruptcy filings will continue to rise in 2009.  If you are considering this option, be sure to consult a legal expert to understand your rights and which choice will be most beneficial to your financial situation.

We offer a Credit Report Review which can identify inaccuracies that may be hurting your credit scores.  Whether you do it yourself or have an expert review, be sure to check your credit reports after bankruptcy.

Your credit file is created when companies that you do business with report their customers’ account information to the credit bureaus.  They are “subscribers” and pay the bureaus to report each month.  Most major national companies report to all three; however, smaller companies such as collection agencies may not want to pay all three credit bureaus so they only report to one or two.  This is one reason for the differences in your credit files between the three bureaus.

There is no federal law stating that companies must report to the credit bureaus.  Because so many companies DO report, the Fair Credit Reporting Act (FCRA) spells out the length of time different types of information can stay on your report.

1) ACCOUNTS IN GOOD STANDING – 10 Years

Closed accounts that were never late or had any other derogatory information reported can stay on your credit report for up to ten years.  They help your score.

2) LATE PAYMENTS – 7 years

When a monthly payment is overdue by more than 30 days, it will usually shows up on the credit report.  These late payments of 30, 60, and 90+ days can stay on the credit file for seven years from the time they happened.

3) CHARGE OFFS – 7.5 years

When a company lists an account as a “charge off” or “loss to profit and loss” it can stay on your credit for seven years plus six months from the date of the first delinquency that led to the charge off.

4) COLLECTIONS – 7 years

The seven year reporting period starts with the original delinquency with the original creditor, NOT the “date opened” listed by the collection agency on the credit report.  The collection accounts often look newer with more recent dates; therefore it is important to know exactly what the collection item is for and when the original charge occurred.

5) JUDGMENTS – 7 years

The FCRA states that civil judgments can stay on for seven years from the filing date or until the governing statute of limitations has expired, whichever is longer.  Check information for your state here.

6) TAX LIENS – 7 years if paid

Unpaid tax liens can stay on the credit reports indefinitely.  Paid tax liens stay on for seven years from the date of payment.

7) BANKRUPTCY – 10 years

Chapter 7 and 11 bankruptcies can stay on for ten years from the date filed.

NOTE: Accounts included in the bankruptcy stay on for seven years from the date filed.  Late payments listed for those accounts will still come off at their own seven-year mark, even if the account was included in bankruptcy.

Chapter 12 and 13 bankruptcies that are completed and discharged can stay on for seven years from the date filed.   Dismissed, or unfinished, Chapter 12 or 13 cases can stay on the credit file for ten years from the date filed.

WHAT TO DO

If your credit report contains information that is past the reporting period, contact all three of the credit bureaus to get it removed and corrected.  You are well within your consumer rights to do so.  Be sure to follow up, making certain that your report is accurate and that no expired items remain.

Learning about your credit and being proactive in building a positive credit rating is an important step to healthy Financial Fitness for your future.   Contact us today for your in-depth Credit Analysis to be sure your credit report is as accurate as possible.

The most common problem seems to be when people submit their paperwork for deferment or forbearance and somewhere in the paper trail among the many companies that are involved in servicing student loans, a late payment of 60 or 90 days is reported to the credit bureaus, even though the official paperwork was submitted in a timely manner.  This appears regularly when the loan(s) are sold or transferred from one servicing agency to another.

Student loans that are not consolidated typically report each semester’s loan as a separate item with many consumers having 4 and as many as 12+ open loans in their credit file.  If each of these shows just two erroneous late payments, the compounded impact on credit scores can be severe.  Additionally, these late payments are usually reported as 90 or 120 days late.  In the credit score formula, a 60 day late payment hurts your score more than a 30 day; a 90 day is worse than a 60 day, etc.   As you can see, the negative impact on credit scores can be extreme.

WHAT TO DO
If you have student loans, or had them sometime in the past, check your credit reports.  Look at each student loan to see if there are any late payments listed.  If so, look at the dates the late payments are reported for.  If you know you were still in school or the loans were in deferment at that time, write to the credit bureaus for correction.

Remember, if you aren’t monitoring and correcting your credit, who is?  

For more information on Credit Building as part of your Financial Fitness, order your Credit Analysis today.

1) Pay all your bills on time.  This is the number one part, 35%, of your credit score.  Typically, late payments are only reported on your credit report when the payment is 30 days or more past due.  One late payment can drop a credit score anywhere from 5 to 50+ points.

If you are going to be late with a payment, contact the company and let them know.  Ask for an extension or a courtesy adjustment to your account.  When they agree, be sure to get it in writing for future reference if needed.

If you have already been 30 days late on a payment, contact the company and ask for a one-time adjustment to your records.  As a long-time customer in good standing, many companies are willing to work with you to keep your business.  Again, whenever something is in your favor, get it in writing.

2) Pay down credit card balances and DO NOT close the accounts.  Many people believe that paying off credit cards and closing them will help their credit scores.   The second largest part of your credit score, accounting for 30% of it, is your balance-to-available-credit.  When your credit card balances are over half of the credit limit, credit scores usually go down.  Maxed out accounts have a severely negative impact on scores. 

If you close your credit card accounts, you reduce your overall amount of available credit.  And you can affect two other parts of your score, too; your length of credit history and your mix of different types of credit used.  Additionally, many lenders require at least one open account in good standing as part of their loan qualification. 

Strategy - Pay credit cards down to under 50% of the credit limit.  Keep them open even after they are paid off.  It is okay to have zero balance.  Use them at least twice a year for a small purchase that gets paid off the next month; this will keep them active and included in your scores.

3) Monitor your own credit reports.  You can do it for free and it won’t count against your scores.  This is the most cost-effective way to be sure your credit report is free from errors and to check for evidence of identity theft.   As many as 80% of credit reports have errors on them, usually hurting credit scores.    Having your credit report in good standing now will help your credit rating grow in the future.

Strategy: Practice Identity Theft Prevention to protect your good name and good credit. 

4) Use your budget.  If you have not yet made a personal, household budget, start NOW.   It is challenging to figure out how to keep more of your hard earned money if you do not know where it is going.  Be sure to include the “small” purchases such as stopping at the store for milk and carrying out two bags of groceries.  Or picking up that fast food and morning coffee every day.  You might also decide to cut out the premium cable and just do basic, or reduce the number of monthly subsciptions you have, freeing up more money.  Ask your phone company and insurance agent to do a rate check to be sure you are on the best, most cost effective plan for your family’s needs.

Strategy: Consider cleaning out your closets and garage by selling items that you no longer use or need.  A neighborhood yard sale or free, online classified ads at sites such as Craig’s List can result in several hundred dollars to add to your pocket or to your savings account. 

The small steps you take now can add up to big savings in your financial future.  Contact us today for your Complete Credit Analysis with personalized credit building strategies.