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A Credit Score that Ignores Collections Reports

2013/05/06 by

Ever wished you could hit “undo” and get rid of a financial faux pax that simply will not drop off of your credit report, and is dragging down the score? Well, now your wish may come true–somewhat.┬áVantage Score, one of the major credit score generators in the U.S., is adopting the practice of not including collections reports on consumer credit reports. The catch? They have to be paid. If a claim is still in limbo, or you haven’t paid it off, expect it to be present on your report. Apparently over 50% of collections reports are medical bill-related, and Vantage Score discovered that paid collections reports are actually not all that accurate in giving lenders a good idea of how a consumer will act going forward with a loan. Instead, the factors that are more trustworthy and accurate are the length of consumers’ credit account and the size of their loans. Here is what Tara Siegel Bernard of the New York Times had to report:

“Megan Barringer had no idea that a medical billing mix-up over a $742 charge for a back evaluation six years ago could end up costing her more than $33,000.

But the old bill, which she ultimately paid, had gone to collections and showed up as black mark on her otherwise clean credit report. Ms. Barringer said she found out about it only when she applied for a mortgage last month and got an interest rate that was half a percentage point more than it would otherwise have been. As a result, she is paying an extra $94 a month on the $298,000 loan she took out on a three-bedroom ranch in Dallas, adding up to tens of thousands of dollars over the life of her 30-year fixed-rate mortgage.”

Click here to read about this new policy when it comes to credit reports, and the effect that it could have on your score.

Now, considering that some 7 million people stated in 2012 that errors in billing (and not on their end, mind you,) were the cause for them to be sent to collections in the first place last year, this new policy could mean a whole lot to these folks. However, I still maintain that as a personal policy, we all should be checking our credit 1-3 times per year (it’s free, people!!) that way you don’t find out when you go to apply for a mortgage or car loan, you know of the error well in advance and can take action to fix it.

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