Tag: credit score

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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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Top 5 Ways to Improve Your Credit Score for the Best Mortgage Rate

improve your credit score

So you’ve set your sights on homeownership – fantastic! But before you dive into open houses and bidding wars, there’s one crucial factor to consider: your credit score. This three-digit number holds immense power when it comes to securing a mortgage, especially the interest rate. A higher score translates to significantly lower rates, saving you big bucks over the loan’s lifetime. Let’s explore some proven strategies to improve your credit score for a home loan and unlock the best possible mortgage rate:

Conquer Your Credit Reports

Understanding your credit health is the first step towards improvement. Request your free credit reports from the three major bureaus (Equifax, Experian, and TransUnion) at Annual Credit Report.com. Scrutinize these reports for any inaccuracies, like late payments or incorrect balances. If you find errors, dispute them directly with the credit bureau to get them corrected.

Make On-Time Payments

Payment history is king when it comes to your credit score. Develop a system to ensure you pay all your bills – credit cards, loans, utilities – on time, every time. Setting up automatic payments can be a lifesaver, eliminating the risk of missed deadlines.

Tame Your Credit Card Debt

High credit card balances can significantly impact your credit utilization ratio – the percentage of your available credit limit that you’re using. Aim to keep this ratio below 30%. Focus on paying down existing credit card debt to improve this crucial metric.

improve your credit score for a home loan

Hit the Brakes on New Credit Applications

Every time you apply for a new credit card or loan, a hard inquiry appears on your credit report, leading to a temporary dip in your score. While exploring new credit options can be tempting, avoid unnecessary applications while actively working on improving your score.

Consider the Authorized User Advantage

Being added as an authorized user on a low-utilization credit card with a good payment history can give your score a boost. This strategy leverages the positive credit behavior of the primary cardholder, potentially improving your score.

Bonus Tip: Diversify Your Credit Portfolio

While credit cards are convenient, having a mix of credit products, like installment loans (e.g., personal loans, car loans, student loans), demonstrates responsible credit management to lenders.

For more tips on how to get the best deal on your dream home check out this post from our friends at Understand Mortgage!

If you already a homeowner and looking to utilize the equity in your home be sure to check out this post as well.