Tag: credit report

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No More Medical Debt on Credit Reports? CFPB Takes Action to Protect Consumers

medical debt on credit reports

The Consumer Financial Protection Bureau (CFPB) is proposing a significant rule change that could impact millions of Americans: removing medical debt from credit reports. This move aims to improve credit scores, increase loan approvals, and prevent debt collectors from unfairly pressuring people into paying inaccurate medical bills.

Watch Uncle Aaron's short video on this topic...

Why is Medical Debt on Credit Reports a Problem?

The Fair and Accurate Credit Transactions Act (FACTA) originally restricted lenders from using medical information for credit decisions. However, a loophole allowed medical debts to stay on credit reports, even though they often:

Are inaccurate: Medical billing is complex, and mistakes happen.

Don’t predict future creditworthiness: Studies show medical bills aren’t a good indicator of someone’s ability to repay other loans.

Hurt credit scores: Medical debt on credit reports can significantly lower credit scores, making it harder to qualify for loans or get good interest rates.

What Would the CFPB Rule Change Do?

The proposed rule has several key parts:

Eliminating the Medical Debt Exception: Lenders would no longer be allowed to consider medical debt  when making loan decisions (with some exceptions).

Protecting Consumers from Debt Collectors: The rule aims to stop debt collectors from using credit reports to pressure people into paying inaccurate medical bills. This includes the practice of “debt parking,” where collectors buy and report medical debt without the consumer’s knowledge.

Banning Repossession of Medical Devices: People wouldn’t have to worry about losing essential medical equipment like wheelchairs if they can’t repay a loan.

Potential Benefits of the Rule Change

The CFPB estimates that if finalized, the rule could:

  • Increase credit scores by an average of 20 points for Americans with medical debt on their reports.
credit report score increase with no medical debpt
  • Lead to the approval of roughly 22,000 more mortgages per year.
  • Make the credit reporting system fairer and more accurate.

What Happens Next?

The CFPB’s proposal is currently open for public comment. This means you can have your voice heard and weigh in on the proposed rule.

This change has the potential to significantly impact how medical debt affects people’s financial lives. Stay tuned for further developments as the CFPB finalizes the rule.

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Unlocking the Key to Mortgage Approval: The 4 C’s of Mortgage Lending

The 4 C's of Mortgage Lending

Securing a mortgage is a significant step towards owning your dream home. However, navigating the mortgage process can be daunting without a clear understanding of what lenders look for. That’s where the 4 C’s of mortgage lending come into play. Mastering these four crucial factors—Capacity, Capital, Collateral, and Credit—can greatly increase your chances of mortgage approval.

Capacity to Repay

Capacity is the borrower’s ability to repay the mortgage. Lenders assess this by examining your income, employment history, and debt-to-income ratio (DTI). To bolster your capacity:

  • Boost Your Income: Consider ways to increase your income, such as taking on a second job or freelancing.
  • Strengthen Employment Stability: A consistent employment history demonstrates stability to lenders.
  • Manage Debt Wisely: Keep your debt-to-income ratio low by paying off existing debts or consolidating them.

By showcasing a strong capacity to repay the loan, you’re positioning yourself as a favorable candidate in the eyes of lenders.

The 4 C's of Mortgage Lending - Capacity
The 4 C's of Mortgage Lending - Capital

Capital

Capital refers to the funds you have available for the down payment and closing costs. Lenders view a substantial down payment as a sign of financial responsibility and commitment. Here’s how you can optimize your capital:

  • Save Diligently: Start saving early and regularly to accumulate a sizable down payment.
  • Reduce Expenses: Cut unnecessary expenses to free up more funds for your down payment.
  • Explore Down Payment Assistance Programs: Investigate government or community programs that offer assistance with down payments for eligible buyers.

Increasing your capital not only improves your chances of mortgage approval but also positions you for better loan terms.

The 4 C's of Mortgage Lending - Collateral

Collateral

Collateral acts as security for the lender in case of default. It typically refers to the property being purchased. Lenders assess the value and condition of the collateral to determine the loan amount and interest rate. To enhance the collateral aspect:

  • Choose a Desirable Property: Select a property with good market value and growth potential.
  • Maintain Property Condition: Keep the property well-maintained to preserve its value.
  • Consider Additional Collateral: If possible, offer additional assets as collateral to strengthen your application.

By presenting an attractive collateral, you instill confidence in lenders and increase your chances of mortgage approval.

Credit

Credit history plays a crucial role in mortgage approval. Lenders evaluate your credit score and credit report to assess your repayment behavior. To improve your creditworthiness:

The 4 C's of Mortgage Lending - Collateral
  • Monitor Your Credit: Regularly check your credit report for errors and address any discrepancies promptly.
  • Pay Bills on Time: Timely payments demonstrate responsible financial behavior and positively impact your credit score.
  • Manage Credit Utilization: Keep your credit card balances low relative to your credit limits to maintain a healthy credit utilization ratio.

A solid credit history is a testament to your reliability as a borrower and significantly enhances your mortgage approval prospects.

Mastering the 4 C’s of mortgage lending—Capacity, Capital, Collateral, and Credit—empowers you to navigate the mortgage process with confidence. By optimizing these key factors, you not only increase your chances of mortgage approval but also pave the way for favorable loan terms and homeownership success.

Unlock the doors to your dream home today by leveraging the power of the 4 C’s of mortgage lending.