The “Little” Things in Credit Reporting

We all start a new year with new goals, new dreams, and new hopes. For some people, those goals involve getting their credit in order so they might buy a new home, possibly their first home. Most people understand the basics of obtaining and keeping a good credit score – Paying bills on time, not running up debt, not applying for too many new accounts, etc. There are things though that some people are not aware of or have questions about when it comes to credit. While a few might not pertain to everyone, there are some seemingly “little” things to keep in mind.

Checking your own credit report

Many consumers do not understand how important it is to monitor their credit report. The good news is that credit reports can be checked once a week for free at www.annualcreditreport.com. It is not necessarily essential to check it once a week, but once every few months is a particularly good idea. With identity theft as rampant as it is, examining your report regularly is an effective way to ensure that everything on your report is correct. You can easily verify that new accounts have not been opened in your name or that new late payments or collections have not suddenly shown up that may be wrong. You can also check all your personal information. If anything looks incorrect, it is easy to dispute any inaccuracies from that site.

Marriage

There are consumers that are under the assumption that when two people get married they “inherit” the other person’s credit history. This is not correct. Each borrower has their own credit history. The only credit that would show on both party’s credit reports would be any accounts that they have opened jointly or in which one party was an authorized user on the other’s account.

Divorce

Divorce can be tricky when it comes to credit. If you have joint accounts such as credit cards, auto loans or mortgages, those are usually assigned to one of the individuals in the divorce decree. That one person now has the responsibility of that account. However, this does not mean the other party is not still legally financially responsible for the account. It is important to note that creditors do not honor divorce decrees. So, for example, if a credit card is awarded to one person who then makes delinquent payments on that credit card, those late payments will still show on the other persons credit report. The same is also applicable to a mortgage or auto loan. If the mortgage is awarded to one person and they let the house go into foreclosure, that foreclosure will show on the other person’s report as well. A divorce decree does not supersede the original agreement between the borrowers and the creditor. Divorce decrees are nothing more than a piece of paper to creditors. The best course of action in the case of a divorce is to close all joint credit cards. If there is a home or car involved, once the divorce is settled, the party who received the house and/or auto should refinance them into just their name.

High Credit Card Debt

The United States is experiencing the highest credit card debt ever right now. It is currently over one trillion dollars. Because of the economy and inflation, more people have taken to using their credit cards for basic necessities, and if necessary to pay bills. Now is good time to work on getting all revolving debt to a minimum. If you have cards that have a high interest rate, look at transferring the balances to a card that has a lower interest rate. If you have cards that have a long history, you can call the credit card company and ask if they will lower your interest rate. There are creditors that will, especially if you have had the card for a long time and it has a good payment history. Work on paying off the cards that have the higher interest rates first, and then move to rest. If you decide to close any of them, close the ones that were most recently opened. Do not close cards that have a long credit history as when you close them you lose that history. Any past due payments would still reflect but all the good history would no longer be valid or factored into your scores.

Late payments

A creditor cannot report a person late unless they are 30 days past due. However, there are instances where a creditor will inadvertently report a late payment when the payment was not actually 30 days late. This is another good reason to check your credit report regularly. It is important to remember that a late payment is a late payment no matter what the account. A 30-day late payment on a store credit card will have the same impact as a late payment on a mortgage or auto loan. This could be in the arena of 100+ points depending on the rest of the credit report. If there is a late payment showing, it is always a good idea to call the creditor and see if they will do a “one-time courtesy removal.”  There are creditors who will agree to do this. Just be sure to talk to a manager when you call. Some might overlook this option thinking that a creditor would never agree to it, but some will, and it never hurts to ask!

Home improvement loans and time shares

These are loans that can hinder one’s ability to be able to purchase a new home or refinance an existing home because they report as mortgages when they are not. This has to do with the “codes” a creditor uses when they report to the bureaus. All creditors use different identifying codes when they report. These codes vary depending on if the account is an installment, revolving, monthly, auto, student or mortgage loan. Unfortunately, the codes used by creditors that deal in time shares and home improvement loans more often than not report with mortgage codes. This can be especially worrisome with time shares. If you default on a timeshare, they can then report it as a foreclosure on your credit report even though it is not actually a mortgage. Please note that home improvement loans are not referring to Home Equity Lines of Credit. That is quite different than a home improvement loan. When applying for a home improvement loan or time share it would be a good idea to ask if they will report with just installment codes which can alleviate a lot of problems.

There are a lot of idiosyncrasies in credit reports that people do not think of or are unaware of, all the “little” things can be confusing and frustrating. If you have questions about credit reports, there are many online resources you can use to have your questions answered. Most banks and credit unions that you have your checking and savings accounts with also typically have internal resources that you can reach out to with questions as well. Whatever your questions are regarding credit, there are answers. Let us start this new year looking at the “little” things since they can sometimes turn out to be pretty big issues.



Author: Mindy Leisure Director of Rescoring Services
Mindy has been with the company since it’s inception in 1994. She wears several hats at Advantage Credit and as a public speaker she has delivered dozens of seminars for borrowers, real estate agents and mortgage brokers on the ins and outs of the world of credit. Prior to joining Advantage Credit she had 15 years experience in mortgage, real estate and property management. Her experience, knowledge and dedication have helped make Advantage Credit a leading credit reporting agency. Mindy has a BA from Fort Lewis College in Durango CO and an MFA from Humboldt State University in Arcata, CA. After living for 32 years in Colorado she has recently moved back to where she was born and raised in Bartlesville, Oklahoma in order to be closer to her family. In her free time she loves to cook, fish, garden, write and spend time with her family and her dogs Micah and Murphy.