How Medical Debt Affects Your Credit Score in 2023
Managing medical debt can be a challenging and stressful experience for individuals and families. Not only does it impact your financial well-being, but it can also affect your credit score, making it harder to secure loans or obtain favorable interest rates. However, recent developments in credit reporting practices have brought some positive changes. In this blog post, we will explore how medical debt affects your credit score in 2023 and discuss the significant updates that have occurred to alleviate the burden for many consumers.
1. The Impact of Medical Debt on Credit Scores:
In the past, medical debt had a substantial impact on credit scores, often resulting in lowered scores and reduced access to credit. Delinquent accounts and collections could remain on credit reports for years, hindering individuals' financial prospects. These negative effects were particularly unfair, considering that medical debt is often unexpected and unavoidable.
2. Removal of Paid Medical Collection Debt from Credit Reports:
One significant development that took effect on July 1, 2022, was the removal of paid medical collection debt from U.S. consumer credit reports. Previously, even after paying off medical debts, the collection accounts would remain visible on credit reports, impacting credit scores. This change provides relief for individuals who have successfully settled their medical debts, as it allows them to rebuild their credit profiles without the burden of past collections.
3. Exclusion of Recent Medical Collections from Credit Scoring:
Another crucial modification implemented in 2022 was the exclusion of medical collections less than 12 months old from credit scores. This alteration acknowledges that recent medical debts may not accurately reflect an individual's creditworthiness. By excluding these collections from credit scoring models, individuals can have a fairer chance to demonstrate their financial responsibility, especially when facing temporary medical challenges.
4. Removal of Small Medical Collections:
As of April 11, 2023, the three major credit reporting agencies, Equifax, Experian, and TransUnion, have taken a further step to alleviate the impact of medical debt on credit scores. They have collectively decided to remove all medical collections under $500 from credit reports. This change is estimated to benefit approximately half of those with medical debt on their reports, providing them with an opportunity to rebuild their creditworthiness.
In recent years, significant changes have been made to address the adverse effects of medical debt on credit scores. The removal of paid medical collection debt from credit reports, exclusion of recent medical collections from credit scoring, and the removal of small medical collections under $500 are all positive steps toward a fairer credit reporting system. These changes aim to provide relief to individuals burdened by medical debt and empower them to rebuild their financial standing.
It is essential to stay informed about evolving credit reporting practices and take proactive steps to manage medical debt responsibly. While these changes offer promising improvements, it is still crucial to communicate and negotiate with healthcare providers and billing departments to avoid medical debt in the first place. By staying vigilant and informed, individuals can better navigate the complex landscape of medical debt and protect their credit scores for a brighter financial future.
Contact us today to learn more about the recent updates and how they impact your ability to qualify for a mortgage.
Beware of Wire Fraud During the Home Buying Process
As the home buying process becomes more digitized, the prevalence of wire fraud in real estate transactions is increasing at an alarming rate. Scammers are finding new ways to target and deceive unsuspecting home buyers, and it's essential to be aware of the risks to avoid being a victim.
Wire fraud occurs when cybercriminals use email phishing scams to trick home buyers into wiring money to a fraudulent account. They disguise themselves as legitimate entities, such as title companies, real estate agents, or attorneys, and send emails with fake wire instructions. These emails may appear genuine, with logos and other information that make them look authentic. The fraudsters then request that the funds be sent quickly, often citing the need to avoid delays in closing.
Unfortunately, once the funds are wired to the fake account, they are almost impossible to recover. Home buyers can lose their entire down payment or more, and the dream of owning a home can quickly turn into a financial nightmare.
To protect yourself from wire fraud, there are several things you can do:
1. Be skeptical of emails that ask for a wire transfer. Double-check the sender's email address to ensure it's legitimate, and don't hesitate to call the title company, real estate agent, or attorney to confirm any wire transfer instructions.
2. Don't click on any links or download attachments from unsolicited emails. Malicious links and attachments can infect your computer with malware or other viruses that can compromise your personal and financial information.
3. Use a secure Wi-Fi network when accessing sensitive information. Public Wi-Fi networks are not secure and can be easily hacked, allowing cybercriminals to intercept your data.
4. Monitor your accounts regularly. Keep an eye out for any unauthorized activity or unusual transactions, and report them immediately to your financial institution.
5. Educate yourself and your family about wire fraud. The more informed you are about the risks, the more likely you are to avoid falling victim to these scams.
In conclusion, wire fraud is a serious threat to home buyers, and it's crucial to take steps to protect yourself from this growing problem. Be vigilant, stay informed, and don't hesitate to ask questions or seek guidance from trusted professionals. With a little effort and attention, you can ensure a smooth and secure home buying experience.
We strongly encourage all our customers
to watch the informative video from the American Land Title Association,
which provides practical guidance on identifying and preventing wire
How the Federal Reserve Affects Mortgage Interest Rates
As a prospective or current homeowner, you may have heard about the Federal Reserve's recent rate increases and wondered how they could affect your mortgage interest rates. In this blog post, we will explore the relationship between the Federal Reserve and mortgage interest rates, and explain what it means for home buyers like you.
Why it Matters
When it comes to buying a home, one of the most important factors to consider is the interest rate on your mortgage. This rate will determine your monthly payment and how much interest you'll pay over the life of the loan. But did you know that the Federal Reserve can play a significant role in determining mortgage rates? Here's how it works:
What is the Federal Reserve
The Federal Reserve, often referred to as the "Fed," is the central bank of the United States. Its primary goal is to promote a stable economy by managing monetary policy. One way it does this is by setting the federal funds rate, which is the interest rate that banks charge each other for overnight loans.
When the Fed raises the federal funds rate, it becomes more expensive for banks to borrow money. As a result, banks are likely to raise the interest rates they charge on loans, including mortgages. This can make it more difficult for potential homebuyers to qualify for a mortgage or afford a home.
Conversely, when the Fed lowers the federal funds rate, banks can borrow money more cheaply. This can lead to lower interest rates on loans, including mortgages. When mortgage rates are lower, it can be easier for potential homebuyers to qualify for a mortgage and afford a home.
How it Impacts Mortgage Rates
It's important to note that the Fed doesn't directly control mortgage rates. Rather, it influences them through its monetary policy decisions. Mortgage rates are also affected by other factors, such as inflation, economic growth, and global events.
If you're in the market for a home, it's important to keep an eye on the Federal Reserve's actions and how they may impact mortgage rates. You may want to consider working with a mortgage broker like us, who can help you navigate the complex world of interest rates and find the best mortgage for your unique situation.
In conclusion, the Federal Reserve has a significant impact on mortgage rates through its monetary policy decisions. As a potential homebuyer, it's important to stay informed about these decisions and work with a trusted professional like us to find the best mortgage for your needs.
While there has been much talk about the recent federal interest rate increases, it is crucial to consider the current state of mortgage interest rates in comparison to the past four decades. To illustrate this, the following image displays a historical chart outlining the fluctuations in mortgage interest rates over the last 40 years.
We hope this blog helps you to better understand how the federal reserve rates impact the mortgage interest rates.
Contact us today 407-834-3377
What Factors Affect Mortgage Approval?
Before you look at homes, it’s always a good idea to get pre-approved for a mortgage. This way you know how much you can afford and what your mortgage payment will be. Before you get pre-approved, though, it’s important to know what factors affect mortgage approval.
Here are the top factors:
Your credit score is the first thing lenders look at when deciding if you qualify for a loan.
It doesn’t need to be perfect, but the higher your credit score is, the higher your chances of approval become.
Ideally, you should have a credit score of 700 or higher, but if it’s not, aim for at least a 660 credit score.
Your credit history is just as important as your credit score. It shows lenders how you handle your finances. To increase your chances of mortgage approval, make sure your credit report doesn’t show any:
Payments over 30 days past due
Credit cards with over 30% of the credit line outstanding
Too many inquiries
Your debt-to-income ratio shows lenders how much of your income is spoken for already. This includes the new mortgage you applied for, too.
The higher your DTI is, the lower your chances of approval become. Ideally, your debt-to-income ratio should be 43% or less. You can calculate your DTI by totaling up your monthly debts (car loans, personal loans, student loans, minimum credit card payments, and new mortgage PITI) and divide it by your gross monthly income (income before taxes).
If it’s higher than 43%, see what debts you can pay off to lower your DTI.
Most lenders want to see a 2-year employment history. This means two years at the same job with a stable income. If you changed jobs within the last 2 years, but it was within the same industry and it was to make more money or take a better position, you may still be in good standing.
Try avoiding changing jobs and/or industries leading up to a mortgage application to improve your chances of mortgage approval.
Money for a Down Payment
Most loan programs require a down payment. It doesn’t have to be 20% or even 10%; you can get by with 3% - 3.5% down today, but you’ll need to prove you have the funds. Lenders look at your bank statements to ensure the money belongs to you and that it’s yours to spend.
You’ll also need money for closing costs, which can be 2% - 5% of the loan amount, depending on your lender and the qualifying factors.
It’s not as hard as it seems to get a mortgage approval, but you should take the time to prepare yourself for the application. The better your qualifying factors are when you apply, the higher your chances of approval become. Also, with higher credit scores, lower debt ratios, and enough money saved for a down payment, you could get more attractive terms and interest rates on your mortgage!
Call us today, and we can chat about your financing options: 407-834-3377.