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What Is a Credit Inquiry?
A credit inquiry occurs when you apply for a loan or credit card and thus, allowing the lender or credit issuer to check your credit. Most creditors will rely on standard credit bureaus such as Transunion, Experian, and Equifax. Other entities may use alternative bureaus which can provide deeper analysis or credit scoring based on alternative methodologies.
Which are the types of credit inquiries?
There are two types of credit inquiries: soft inquiries and hard inquiries. Account reviews and preapproved offers that are linked to the category of soft inquiries, have no effect on your credit scores.
What about when you are shopping for a loan?
When you are applying for a new loan, your information may be sent to multiple lenders to try to find the best loan terms and rates for you. You will find a separate inquiry on your credit report from each of these creditors, but your credit score won't be decreased for each one.
When you request credit limit increase, is that a hard inquiry too?
Some creditors may treat it as an application for new loan or additional credit and require a new credit report be accessed, which will appear as a hard inquiry. Others may approve the loan without pulling your credit report or by doing an "account review," which will appear on your report as a soft inquiry.
How long does an inquiry stay on the credit reports?
The inquiries remain on the credit report for two years. However, hard inquiries affect your score for only the first 12 months. After that, they have no impact on your score.
How much do hard inquiries affect your credit score?
New debt—including inquiries and any new credit accounts—make up just around 10% of your FICO score. A single inquiry drops your credit score by only three to five points.
If a creditor pulls up your history and sees you are running up a lot of inquiries, they may wonder why. It can look like you are desperate for credit but getting denied by creditors.
Can hard inquiries be removed from the credit reports?
Some inquiries may seem suspicious: you might not recognize the name of the company, or there may be more inquiries than you expect.
If a hard inquiry you didn’t authorize is on your credit reports, it may be because:
There are 2 situations when you can request to remove hard inquiries:
How much do hard inquiries affect your credit score?
New debt—including inquiries and any new credit accounts—make up just around 10% of your FICO score. A single inquiry drops your credit score by only three to five points.
If a creditor pulls up your history and sees you are running up a lot of inquiries, they may wonder why. It can look like you are desperate for credit but getting denied by creditors.
When do Student Loans appear on your report?
The student loans will appear on your credit report while you are still in college and still technically in deferment.
How do Student Loans impact your credit?
Your student loan is considered an installment loan. Credit reporting agencies will treat them as installment loans on your credit report.
If you have student loan debt and make regular, on-time payments on it after graduation, your credit report will reflect that. On the other hand, failure to pay your student loans on time or letting your student loans fall into collections will also go on your credit report and can negatively impact your credit score.
Can shopping for Private Student Loans affect your credit?
Applying for federal student loans doesn’t show up on your credit report until you actually take out a loan. If you still need additional funds beyond federal student loans to pay for your college expenses, you may decide to apply for a private student loans.
When do Student Loans have a negative impact?
With federal (non-Perkins) loans, your delinquency will not be reported to the three major credit bureaus until you are 90 days delinquent. Once your loan payment has been delinquent for 270 days, however, it is considered in default.
How does defaulting on Student Loans affect credit?
A student loan default could remain on your credit report for seven years. The government can garnish your pay and also withhold any federal income tax refund you might have been counting on to get out of this situation.
Private lenders might not wait 90 days to report a missed payment, however, they might also have different guidelines for default. Each private lender is different, but as soon as your lender starts reporting missed or late payments, that can begin pulling down your credit score.
What If You Can't Pay Your Student Loans?
It's not unusual to have problems repaying your loans once you're out of college and have entered the workforce. If you're having trouble in making your loan payments, you do have options.
Income-Driven Repayment
If you have qualifying student loans, you might be able to shift to a plan that allows you to make payments based on your income - including reducing your required monthly payment to zero.
When you're on income-driven repayment, each payment is considered "paid as agreed." Additionally, payments made while on one of these plans also "counts" toward the 120 qualifying payments needed to obtain Public Service Loan Forgiveness.
Deferment or Forbearance
The deferment is a “temporary pause to your student loan payments for specific situations such as active duty military service and reenrollment in school.” A forbearance is a “temporary postponement or reduction of your student loan payments because you are experiencing financial difficulty.”
Loan Consolidation
It may be helpful to use a Direct Consolidation Loan for your federal student loans so that you will only have one monthly payment to make. Direct Loan Consolidation might also extend your payment period, making your monthly obligation easier to manage.
Refinancing
Note that refinancing makes use of a large private loan to pay off your smaller loans. You can refinance federal student loans, but once you do that, you lose access to programs like income-driven repayment and federal loan forgiveness.
If you have good credit, refinancing before you start missing payments can help you lower your interest rate, extend your loan term and potentially reduce your monthly payment so it is more manageable.
Why are there so many Student Loans on my credit reports?
The first surprise in store for you may be that your student loans will likely show up as not just one, but actually multiple accounts on your three credit reports. The reason this occurs is because your student loans are normally reported to the three major credit bureaus (Equifax, TransUnion, and Experian) on a disbursement by disbursement basis.
What is Mortgage Finance?
A mortgage is a loan to purchase a home or other real estate. A lender will give a loan if you meet few requirements such as a high credit score and income level and have the financial ability to pay it back.
What is a Reverse Mortgage?
A reverse mortgage is a home loan that you do not have to pay back for as long as you live in your home. You only repay the loan when you die, sell your home, or permanently move away. Homeowners who are at least 62 years old are eligible.
When does the Mortgage Company start reporting Late Payments?
Your creditor will begin negative reporting to the credit bureaus the first time you are 30 days late with your mortgage payment. Most banks wait until you are 90 days late in your payments to begin foreclosure proceedings, which often take two or three months to complete. By the time your foreclosure is actually finalized.
What Is a Foreclosure?
A foreclosure occurs when the creditor takes possession of a property if the client fails to keep up with loan payments. The lender is legally entitled to seize the property to recover as much of the debt amount as possible.
How can a Foreclosure Happen?
Late and missed loan payments
Foreclosure happens when the client fails to pay mortgage payments and the lender or mortgage creditor must repossess and then sell the property.
Unpaid taxes
Foreclosure can also happen when the homeowner fails to pay their property taxes or homeowners association fees.
Which are the 5 stages of Foreclosure?
Stage 1: Missed Payments
The process begins with missed payments. Once the homeowner begins missing payments, they are no longer upholding their responsibilities of the loan, and the lender can come to collect.
Stage 2: Public Notice
Once the homeowner misses 3 – 6 months of payments, the lender will give a public notice or file a lawsuit with the court. Called a Notice of Default (NOD), or lis pendens (suit pending).
Stage 3: Foreclosure
Once the lender records the public notice, the foreclosure stage begins. The homeowner typically has 90 days to take action. If they want to avoid a foreclosure, they have the following options:
Stage 4: Auction
The auction is open to the public and will often take place on the steps of the county courthouse, in a conference room or convention center, or even online. Before the auction, a Notice of Trustee’s Sale (NTS) will notify the homeowner and the public of the auction and provide such information as a date, time and location.
Stage 5: Post-Foreclosure
If the home was purchased at auction, the previous homeowner must move out of the home, and ultimately, it will be the decision of the new homeowner how to proceed with their property.
How does Foreclosure affect your credit score?
A foreclosure appears on your credit report within a month or two after the creditor initiates foreclosure proceedings.
According to FICO, if your credit score is 680, a foreclosure will drop your credit score on average by 85 to 105 points. If your credit score is excellent at 780, a foreclosure will drop your score by 140 to 160 points.
How to avoid Foreclosure?
If the homeowners want to avoid a foreclosure and avoid eviction, they have the following options:
The Short Sale Option
A short sale is a voluntary sale of the property before foreclosure. When that happens, all of the proceeds from the sale go to the creditor and the sale cannot happen unless the creditor approves it.
The Deed In Lieu Of Foreclosure Option
Another way to avoid foreclosure is with a deed in lieu of foreclosure. In this transaction, the homeowner voluntarily signs the deed over to the lender or creditor and thus, they are released of all mortgage obligations.
How to improve your credit after Foreclosure?
Identify the causes that led to foreclosure.
Figure out what led to your foreclosure. Check your finances and spending history so you can find out why you to miss your mortgage payments.
Make on-time payments.
Pay all your bills on time. Timely payments on your credit cards, car loans, utilities and other bills can be the biggest factor for your credit score.
Plan your budget.
Without proper budgeting, expenses can put you in a cycle of debt and worsen your credit score, rather than help it. Take the time to create a budget.
Consider secured credit cards when looking for new credit.
Foreclosure may prevent you from getting approved for a credit card. If this is the case, apply for a secured credit card to avoid multiple inquiries. Secured credit cards will require a deposit and generally have a spending limit that matches your deposit.
Monitor your credit utilization ratio.
A ratio above 30% can hurt your credit score, so try to keep it below that—the lower, the better. Your credit utilization ratio is the second most important factor in building your credit score.
Have patience.
The repairing your credit score after foreclosure takes a lot of effort. Be patient and don't expect instant results. Just remember that with time and diligence, you can achieve your goal of an improved credit score.
Check your credit scores and reports regularly.
It's a great idea to check your credit reports on a regular basis. You can request a free credit report (Experian, TransUnion and Equifax) once a year by going to AnnualCreditReport.com.
What is Car Finance?
Car finance represents a financial service that allows individuals to purchase a vehicle by borrowing money from specialized financial institutions. It includes car loans and leases.
What is an Auto Loan?
An auto loan represents a loan used with the purpose of purchasing a motor vehicle. They’re usually structured as installment loans and are secured by the value of the purchased vehicle.
What is a Secured Loan?
A secured loan is a kind of loan being protected by an asset, which means, if the consumer is borrowing money to buy a house or a car, the creditor will be the owner of the property until the debt is paid off. If the consumer fails to pay back the loan, the creditor can then confiscate the property and sell it to recover its losses.
How is an Auto Loan structured?
An auto loan consists of two different parts: the principal and the interest. For example, if you are using an auto loan to purchase a vehicle that costs $50,000, then the principal of your loan would be $50,000.
Depending on the vehicle and the dealership, there might be a down payment required. The larger the down payment, the lower the principal of the auto loan. If the borrower in our example puts down a $10,000 down payment on the $50,000 vehicle, then the amount of their auto loan would only be $40,000.
The interest represents the amount of money that the creditor will be charging the consumer on top of the principal. Getting back to our example, if that $50,000 auto loan came with a 5 percent yearly interest rate, and the consumer did make the $10,000 down payment, then the $40,000 will be the amount borrowed by the consumer, which would accrue $2,000 in interest over the course of a full year.
What is a Subprime Auto Loan?
A subprime auto loan is almost the same as a standard auto loan, except for the fact that it is offered to people with bad credit ratings. Due to the increased risk of lending money to debtors with poor credit, subprime auto loans come with much higher interest compared to the standard ones.
What is the difference between an Auto Loan and an Auto Lease?
When it comes to auto loans, the consumer borrows money from a lender to purchase a vehicle, and after the borrowed amount is paid in full, the consumer becomes the rightful owner of the vehicle. Whereas with an auto lease, the consumer rents the vehicle for a certain period of time or a certain number of miles driven, after which the vehicle is returned to the dealer.
What is the difference between an Auto Loan and a Title Loan?
With an auto loan, you are taking out a loan to purchase a car. With a title loan, you are taking out a loan against the value of a vehicle that you already own. Additionally, while almost all auto loans are structured as long-term installment loans, title loans are usually structured as short-term, month-to-month loans.
What is Repossession?
When you take a loan to purchase a vehicle or you decide to lease one, if you don’t comply with your contractual obligations, the creditor may have the right to take back the possession of your vehicle without any warning or court order, to recover a portion of or the whole amount owed. They also have the option to sell the contract to another party who then repossesses the car.
How can Repossession happen?
Late or missed payment
The failure to make an on-time payment may be considered a default by the lender. Once there is a default, the lender may be allowed to take back possession of the vehicle at any time.
Unpaid vehicle repair
If a consumer brings the vehicle to the repair shop but doesn’t have enough money to pay their services, the repair shop might call the lender, and to avoid a mechanic’s lien on the title, the lender may choose to repossess the vehicle.
Towed vehicle
The consumer might be able to get back a towed vehicle if they keep up with the payments. Nevertheless, if the lender picks up the vehicle, the consumer must pay the fees and storage costs to take it back into possession.
Insurance
Letting the insurance expire or defaulting on the insurance agreement might also result in the repossession of the vehicle.
Voluntary car repossession (Voluntary surrender)
Consumers who are facing financial hardship may choose to tell their lender and give back the car voluntarily. There might remain some balance they’ll have to pay off after the vehicle is sold.
What happens when a vehicle is Repossessed?
The lender takes the vehicle
In most states, the lender can repossess the vehicle as soon as the consumer defaults on the loan or lease.
The vehicle is sold
After the lender has seized the vehicle, they may decide to keep it or sell it to recover their losses. If the vehicle is sold, state law enables the consumer to “redeem” the vehicle by purchasing it back from the lender for the full remaining balance, along with additional expenses associated with the repossession.
Deficiency balance
The sale of the vehicle might not cover the full remaining balance on the loan or lease contract. The leftover is called deficiency balance, and the lender is in right to sue the consumer to collect it.
How does repossession affect your credit score?
Repossession is going to drop your credit score between 50 to 150 points. This point drop is due to a couple of factors: the late payments that cause the repo and the collection account that is likely to result from it.
Voluntary repossession (voluntary surrender) will likely cause your credit score to drop by 50 to 100 points.
How to avoid vehicle Repossession?
Call your lender
The sooner you call your lender, the better your chances of negotiating a deal that minimizes damage to your credit and your finances. A temporary cash flow issue might be resolved with a deferment, which allows you to skip one or two monthly payments without triggering a default or repossession.
Sell your car
If you simply can't afford your car payments anymore, one option is to sell your car, preferably before late payments become a repeat issue. You may be able to raise enough money to pay off your loan entirely, and have money left over to put toward a new, less expensive car.
Refinance your loan
While your credit is good, you may be able to refinance your loan balance with another lender. Lower interest rates or a longer repayment term could help make the remainder of your loan more manageable.
1Consider a voluntary surrender
If giving up your car is unavoidable, you may want to voluntarily give your car over to the lender. A voluntary surrender still shows up on your credit report, with nearly the negative impact of an involuntary repossession, but it may allow you to salvage your pride and a bit of good grace from your lender.
How to Improve Your Credit After Repossession?
Rebuilding your credit after a repossession takes time. In most cases, it's a matter of paying down debt, paying balances off on time and being conservative about taking out new loans or credit. As the repossession becomes more distant, its impact will decrease: Credit scoring models tend to favor new information over old.
How to remove a Repossession from your Credit Report?
If you're trying remove a repossession from your credit report to help repair your credit, you basically have three options:
What is a Collection account?
When an account becomes seriously past due, the creditor may sell the debt to a collection agency. Once an account is sold to a collection agency, the collection account can then be reported as a separate account on your credit report.
Collections can appear from personal loans and credit cards. The amount they are sold may be less than the full amount owed, and the remaining amount can still be sent to collections.
Why does an account get sent to Collections?
If you still fail to pay, the creditor will try to cut its losses and it will do this by selling your debt to a debt collection agency at a steep discount. For example, if you owe $100, a collections agency may buy the right to pursue you for payment for as little as $5. The company you originally owed gets something out of the deal. The collection agency gets the potential for a large profit if it can make you pay.
What "Going into Collections" means?
Lenders can collect money from debt in the following ways:
The federal FDCPA strictly regulates how debt collectors can operate when trying to recover a debt. For example, they can't threaten you with imprisonment — or make any other kinds of threat, if you don't pay.
What happens when an account goes into Collections?
You miss or skip a credit card payment or fail to pay another type of bill.
The creditor may give you a grace period during which you could improve your payments on the bill. Typically, it takes longer than 30 days for an account to be sold to a collection agency or placed into collection status. They will notify you, usually more than once, that you haven't paid and ask you to pay up. If you still don't pay, they can move your account into collections.
At that point, the creditor could turn the collection account over to a collection agency. This occurs within a few months of the original delinquency date, and the original account may appear on credit reports as a "charge off".
Once the collection agency receives the account from the original creditor, they are free to pursue you for all or for a part of the debt. They can also report the unpaid debt to credit reporting agencies.
If you are contacted by a collection agency, you have the right for a detailed accounting of the debt they claim you owe.
How long do collections stay on your Credit Report?
Collections can stay on your credit report for up to 7 years from the date the debt first became delinquent.
After 7 years, that account will automatically drop off your credit report, even if a collection agency has assumed the debt.
Paying the collection agency may not fix your credit. In most cases, those accounts are reported for 7 years plus 180 days from the date of the delinquency that immediately preceded collection activity.
How do Collections impact your credit reports and scores?
An account in collections indicates that you have failed to make on-time payments on your bills. This will affect the payment history portion of your credit. Because payment history is the most important part of your credit, it is easy to see why having an account in collections is a bad thing. The amount in collections will also affect the impact on your credit score. Having a bill for $40 in collections is much less serious than having a bill for $4,000 in collections.
How are Medical Collections different?
Until recently, medical collections were treated the same as all other collections. However, FICO updated its scoring in 2014 to treat medical collections differently. Medical collections now carry less weight when your credit score is calculated. Again, this doesn’t mean a medical collection won’t affect your ability to get a loan. Lenders don’t just look at your credit score to make their loan decisions. They usually pull your entire credit report and notice your past negative items. This, in turn, will affect your approval as well as the interest rate. This is especially true when you’re applying for a mortgage loan.
Do disputed debts in Collections get reported?
Under the FCRA, you have 30 days to dispute a debt once you are contacted by a collection agency. Until the collection agency provides proof that the debt is valid, it is not allowed to conduct any debt-collection activity. Unfortunately, reporting the collection account to the credit bureaus is not considered collection activity, so even if you dispute the debt, the agency has likely already reported it to the credit bureaus. If you win the dispute, you can then file a petition for the information to be removed from your report.
Which are the FDCPA Regulations regarding debt collection?
Under the FDCPA, debt collectors are barred from engaging in the following practices:
Harassment
Debt collectors may not harass, oppress or abuse the consumer by using threats of harm, using obscene or profane language, or repeatedly contacting the consumer via telephone with the intention of causing an annoyance.
False Statements
Debt collectors are forbidden from lying in an attempt to collect a debt. Some examples include falsely identifying themselves as credit reporting agency representatives, attorneys or government representatives, claiming that you have committed a crime or misrepresenting the amount you owe.
Unfair Practices
Debt collectors may not engage in unfair debt collection practices by trying to collect interest or a fee beyond the total amount the consumer owes or the state law allows. If you give a collector a post-dated check as payment, they aren’t permitted to deposit the check early. Collectors are not allowed to threaten to take your property unless they can do it legally, and they are barred from contacting you with a postcard.
Misleading Threats
Debt collectors are not allowed to threaten consumers with legal actions that are not permitted or they do not plan to pursue.
Wage Garnishment
Debt collectors are not legally allowed to garnish wages or bank accounts without a court order. Such a judgment directs a bank or employer to turn over funds or wages in order to pay the debt. Even then, many federal benefits are exempt from garnishment, including Social Security, student assistance and military annuities.
Misleading Correspondence
Debt collectors are not allowed to give false information about you to anyone — including a credit reporting agency — and they cannot send you anything that looks like a court or government document if it isn’t one. Conversely, they can’t lead you to think that papers they send you are not legal forms if they are.” – Fair Debt Collection Practices Act.
How to remove a collection account from the report?
Collections can be removed from credit reports in one of the following ways:
If the collection information is valid, you must wait 7 years from the original delinquency date for the information to cycle off your credit reports. The original delinquency date is the date the account first became delinquent and after which it was never again brought current.
You can file a dispute on the collection information in your credit report. The inaccurate information may be updated rather than removed.
Another legal way to get a collection account removed from your credit report besides the ones indicated above, is to negotiate a settlement with the collection agency to pay off the debt in exchange for the agency to stop reporting the account information to the CRAs. But this can only be done with the help of a legal assistant, since if you are not a specialist in that, it can go wrong. If you still decide to do it by yourself, get the agreement in writing so you can pursue legal remedies if the collection agency does not live up to its end of the bargain.