Q: How do negative items affect credit scores?

A: Negative items on credit reports can significantly impact your overall credit score. These factors are considered when calculating a credit score and can be challenging to overcome. You should stay on top of your payments and manage your credit responsibly.

Here is a list of negative items and their impact on the credit score:

Late Payment
110 points

Collections
100 points

Bankruptcy
300 points

Foreclosure
200-220 points

Charge Offs
180 points

These are only estimates, and the actual decrease in score will depend on many factors, including your current credit score.

Q: Can I remove late payments from my credit report?

A: If a late payment is accurately reported, removing it from your reports will be difficult—and it probably won't be deleted for seven years. However, you can request the creditor to remove it as a goodwill gesture by providing a legitimate reason, such as hospitalization or job loss.

If a late payment report is incorrect, you can file a dispute explaining the mistake and demanding that the payment be removed. You'll need to provide proof that the information is incorrect, and then the credit bureau will investigate. If they find it in your favor, they'll remove the payment from your report.

In either case, remember that the Fair Credit Reporting Act gives you specific rights and that you can take action to protect your credit score.

Q: What does a charge-off mean?

A: A charge-off is a notation on a credit report that indicates an outstanding debt has been written off by the lender and deemed uncollectible. It means that the lender no longer considers you liable for paying back the debt, but the debt remains unpaid. Charge-offs can significantly damage your credit score, so it's essential to understand the implications of a charge-off and take measures to improve your credit.

Some common causes of charge-offs include failing to make payments on time, defaulting on a loan, or not responding to collection efforts. To minimize the impact of a charge-off, it's crucial to contact lenders as soon as you become aware of any debt problems.

Once a charge-off has occurred, you can take steps to protect your credit score. You should contact the lender directly and negotiate a settlement for the remaining amount due. If this isn't possible, you can explore other options, such as credit counseling or debt consolidation.

Q: How will it affect my credit report if I pay a charge-off?

A: You are still held accountable even if an account is charged off. So, you should consider paying it off. Doing so before the account gets sold to collections could shield your credit from further harm because a collection, in addition to the charge-off, would show up on your credit history.

Your creditor can report a debt as "charged off" on your credit report, even if you've paid it in full, and this will remain on your record for up to seven years. Occasionally, creditors will delete the account from your credit reports if you agree to pay the debt in full. This is not something that creditors have to offer and is entirely at their discretion.

Q: What's the best way to deal with collection agencies?

A: Some people think dealing with collections is similar to dealing with creditors for other negative accounts, but there are some key differences. Collection agencies earn money by buying debts from creditors at a reduced rate and then collecting payments from the debtors for the total amount. Because these agencies make their living off collecting unpaid debts, they will sometimes go to great lengths to get in touch with you. This may include calling, sending letters, or contacting your employer.

The Fair Debt Collection Practices Act (FDCPA) protects you from being harassed by collection agencies. This means they can't make too many phone calls, threaten you, or call at unreasonable hours. You can ask them not to contact you by telephone. However, they may still be able to contact you in writing.

Q: Will my medical bills have the same effect on my credit score as other collections?

A: Medical bills are the most common type of accounts sold in collections. Most credit scoring models impact your credit score as other types of collections. However, recent credit scoring models are changing because medical bills are often a poor indicator of an individual's creditworthiness.

FICO 9 is the newest scoring model and does not consider paid medical bills. Unpaid medical bills weigh less now. Your FICO score is what most lenders look at when you apply for credit. This news benefits people who only have medical bills on their credit reports; however, not all lenders use FICO 9. Some lenders might still be using older versions of the FICO model, which means that unpaid collections could carry the same weight as before when applying for credit in those cases.

Q: How do I know there are collections on my credit report, and how should I handle it?

A: The best way to determine if you have collections on your credit report is to check it yourself. You can obtain a free copy of your credit report from each of the three major credit bureaus once yearly. If there are any collections, they should appear listed on your report.

If you find collections on your credit report, the best course of action is to contact the collection agency and negotiate a payment plan or settlement that works for both parties. It's essential to make sure any agreement you reach with the collection agency is in writing before making payments. Additionally, if you can pay off the debt in full, that's a better option as it will help boost your credit score more quickly.

Q: What is a foreclosure?

A: Foreclosure is a legal process that typically begins when the borrower defaults on their mortgage payments and the lender initiates judicial proceedings against them. It ends with either the homeowner voluntarily relinquishing the property to the lender or foreclosure proceedings initiated by the lender.

It's important to understand that once the foreclosure process begins, it can be challenging to stop, and homeowners should contact their lender as soon as possible for assistance options. Depending on state laws, lenders may be required to offer certain foreclosure options, such as forbearance plans or loan modifications.

Q: What is a short sale?

A: A short sale is a real estate transaction in which the seller's bank agrees to accept less than the total amount owed on the mortgage loan as payment in full on the sale of a home. This agreement can help homeowners avoid foreclosure, but it can be difficult for sellers to qualify for and close a short sale.

Typically, lenders will only consider approving a short sale if the borrower has experienced a genuine financial hardship, such as job loss or medical bills, and does not have other means to pay off the loan. The lender may also require that the home be sold for less than its market value to make up the difference in what is owed. Short sales can provide some relief from debt for the seller, but they can also hurt the seller's credit score.

Q: What does repossession mean?

A: Repossession is a legal process that occurs when a creditor takes back an item of property from the debtor due to their failure to meet the agreed-upon terms of their loan. This item can be anything from an automobile, boat, home, or other personal property used to secure a loan. The process begins with a demand letter that notifies the borrower of the debt and their intent to repossess the item if the debt is not repaid. If the borrower does not pay, a court order may be obtained from a judge granting permission for the creditor to take back possession of the collateral.

The actual repossession process typically involves hiring a professional repossession service or sending collection agents to repossess the item physically. After the item is in the creditor’s possession, they may sell it to pay off the debt or hold it until the borrower pays the loan amount.

Repossession can significantly impact a person's credit score and financial future. A repossessed item will stay on an individual's credit record for up to seven years, making it difficult for them to obtain future loans or credit cards. In addition, the borrower may have to pay additional fees associated with the repossession process, such as legal costs and storage fees.

Q: What does voluntary repossession mean?

A: Voluntary repossession is when a borrower who has not made payments as agreed to on their loan agreement decides to turn the collateral over to the lender to avoid further legal action. This means that the borrower gives up ownership of the item and agrees for it to be repossessed by the lender.

The lender then has the right to collect any remaining balance due on the loan, sell the item, or take other action as permitted under the law. It is important to note that voluntary repossession does not absolve the borrower of their responsibility to pay back the remaining balance due on the loan.

Q: Are there any alternatives to repossession if I can't make the payments?

A: If you're finding it challenging to cover all your expenses, you can talk to your lender or creditor and set up a plan where you can make smaller payments over time. This way, it is easier for you to stay on top of what you owe. You can also refinance your existing loan and obtain better terms to make repayment more manageable.

If these options do not work, you may consider filing for bankruptcy, allowing you to discharge your debts and make a fresh start. However, this should be done only as a last resort because it can have serious long-term consequences on your credit profile.

Q: What's an effective way to handle a judgment filed by a creditor?

A: A judgment cannot be filed against you unless you have received proper notification and a summons to appear in court. This provides you with the opportunity to present a defense against the creditor.

Unpaid judgments are considered “unsatisfied,” and paid judgments are, as you might expect, “satisfied.” Even after paying a judgment, it will remain on your credit reports; however, the report will note that the debt has been satisfied.

The court can also vacate or dismiss a judgment. If the judgment is vacated, the case is dismissed without prejudice, which usually works in favor of the person being sued by the creditor. A dismissed judgment means that charges were dropped and generally benefit the party being sued.

Q: How are judgments reported after the changes made in July 2017?

A: As a result of a lengthy effort by consumer advocates and government authorities, the three primary credit bureaus (Experian, TransUnion, and Equifax) made changes to how judgments and liens are reported starting July 1st, 2017, to help consumers. For a judgment or lien to appear on someone's credit report from the credit bureaus, the following information must be included:

Name

Address

Social Security Number/Date of birth

If any of the information detailed above is missing or wrong, the credit bureaus must take the judgment off a consumer's credit reports. Furthermore, the bureaus must confirm accuracy every 90 days – if not, it could also lead to removal.

Q: How can a tax lien be removed from a credit report?

A: A tax lien can be removed from a credit report in three primary ways:

- The first is to pay the debt, including any associated fees and penalties. This will result in the lien being released by the IRS and subsequently removed from your credit report.

- Another option is to apply for an Offer In Compromise (OIC). This agreement between a taxpayer and the IRS allows the debt to be paid in a reduced amount. Once your offer in compromise is accepted, the lien will no longer be on your credit report.

- Finally, you can file a dispute with the credit bureau to contest the accuracy of the information about your tax lien on your credit report. If the investigation is determined in your favor, the lien information will be removed from your report.

In some cases, you may also negotiate with the IRS for a payment plan that allows you to pay off the debt over time and have the lien removed from your credit report once it is paid in full.

Q: What happens to debts discharged in bankruptcy?

A: When a debt is discharged in bankruptcy, the individual has no legal obligation to pay it. The creditor cannot collect on that debt from the debtor any longer and cannot bring any legal action against them for not paying. However, creditors may still report the discharged debt on the person's credit report for up to 10 years after the bankruptcy discharge.

The individual might have more trouble getting credit down the road. Additionally, some types of debts, such as student loans and back taxes, are not eligible for discharge in bankruptcy and must be paid even after a bankruptcy is filed.

Therefore, it's important for people considering bankruptcy to understand what debts are eligible for discharge and which are not. Additionally, it's essential to remember that filing for bankruptcy will hurt the individual's credit score and may affect their ability to obtain credit in the future.

Q: What debts can and can't be included in bankruptcy?

A: Bankruptcy can be used to discharge most types of unsecured debts. Examples of unsecured debt that can be discharged in bankruptcy include credit cards, medical bills, personal loans, payday loans, utility and cell phone bills, repossessions, deficiency balances on foreclosed properties, past-due rent, and judgments from past lawsuits.

It's important to note that certain debts cannot be discharged in bankruptcy, including student loans, child support payments, alimony, and most taxes. Additionally, some types of secured debt (debt backed by collateral), such as a home mortgage or auto loan, cannot be discharged in bankruptcy. In these cases, the consumer would need to continue making payments; otherwise, the lender can repossess the collateral.

Under some circumstances, even secured debt can be discharged in a bankruptcy proceeding. For example, if a borrower has made recent payments on their loan but cannot keep up with future payments due to financial hardship, they may be able to have the balance of the loan discharged. Additionally, in some cases, a consumer may be able to have their auto loan payment reduced so they can continue to make payments and keep their vehicle.

Q: What are the different types of bankruptcies?

A: Generally, there are three types of bankruptcies: Chapter 7, Chapter 11, and Chapter 13.

Out of all these, Chapter 7 is the most common; it involves liquidating non-exempt assets to pay off creditors.

Chapter 11 bankruptcy is more complicated and involves reorganizing the debt of a business or individual. This type of bankruptcy typically allows for the debt to be restructured so that it can be paid off over time.

Chapter 13 bankruptcy is designed for individuals with a steady income but too much debt. It allows them to create a repayment plan that will enable them to pay off their debt over 3-5 years. During this time, creditors are not allowed to take action against the debtor and must wait until the repayment plan is completed. This type of bankruptcy also requires that all debt obligations be paid in full before the debtor can receive a discharge from liability.