Lending a Hand: Good News for Mortgage and Medical Debt

As a mortgage lender, I have to look at the customer’s entire financial situation, including debt. I often see medical bills listed. It is one of the items that can make a person hesitate to take out a loan.

For those working hard to pay off their medical debt, there’s great news from the world of consumer credit.

As of July 1st, paid medical receivables are no longer included in your credit report.

In addition, the period for unpaid medical bills to appear on your credit report has been increased from six months to one year. This extension will give potential homebuyers more time to work with their insurance and health care providers to address their debt before it is reported on their credit file.

Borrowers may be able to negotiate the amount they owe and work on payment plans. (You should always contact the provider and the collection agency if a medical expense recovery is incorrectly reported. You can also file a dispute with the credit bureau.)

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If you have outstanding medical debt after the initial grace period, these recoveries reported on your credit report may affect your mortgage eligibility. For FHA loans, the mortgage lender determines whether collection accounts (including medical) were opened because of the borrower’s neglect of its financial obligations, inability to manage its debts, or extenuating circumstances. need to do it.

Mortgage lenders must document the reasons for approving a mortgage if the borrower has a collection account. The borrower must provide a letter of explanation supported by documentation. If a medical collection is in dispute, the lender may be able to exclude it during credit history analysis, but documentation may still be required.

In the first half of 2023, Equifax, Experian, and TransUnion will also no longer include medical billing liabilities of less than $500 on their credit reports.

These changes are a big deal for people working to improve their credit score.

Here are some other tips to improve your score.

  • Pay bills on time. Your payment history has the biggest impact on your credit score. Even one or two late payments can have a significant impact on your score. Lenders and other creditors want you to make payments on time.
  • Keep your balance low. Debt isn’t bad, but how you manage it matters. If you use up all your loans and credit cards, your score will decrease. Keeping your balance below your credit limit helps your score because it shows you are responsible and able to manage your expenses.
  • Apply for and open a credit account only when necessary. If you need a new account, make sure your terms and conditions are acceptable, keep your balance low, and pay your bills on time.
  • Pay off your debt instead of moving it. Transferring debt from one account to another does not solve anything. You need to work to pay off balances in a consistent manner.
  • Be patient. Consistent long-term payments and responsible behavior are all about improving your credit score. This kind of behavior shows how large credit accounts like mortgages can be handled.

Be optimistic about buying a home for 2023 and ask your mortgage lender about the important credit report changes you need to know about.

Shikma Rubin is a loan officer at Tidewater Home Funding in Chesapeake. Do you have questions about mortgages?contact her srubin@tidewaterhomefunding.com or 757-490-4726.

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