Declined Mortgage Refinance for Past Collection Account Now Paid on Credit Report
Our credit union says my credit report shows the consumer disputed the claim, and the collection agency refuses to remove the comment on my report, and the credit bureau defers to the collection agency on the matter. Stuck in the middle is my attempt to refinance a house, which is not underwater. The collection in question was for about $130 and was repaid as soon as I found out about the situation. I disputed why it should have gone to a collection agency in the first place - and of course that is now coming back to bite!
Can a credit union decline a housing refinance based on a past collection account that is now zero balance?
Lenders can and do refuse to offer loan products when they see you are higher risk for default. A collection account on your credit report shows increased risk.
Automatic underwriting for loan approval with debt collections on credit report.
My suspicion is that the your loan is being declined based on automatic underwriting used by your credit union. Unless of course you reply and say that you have other outstanding and unpaid debts, or that there are multiple collection accounts reported in the last couple years.
If the only collection account on your credit report is for a bill barely over 100.00, and you filed a consumer dispute for that entry, it typically means:
- A misunderstanding between you and the lender.
- Payments were missed by oversight or forgetfulness.
- You disputed a product/service, or refused payment based on personal principles for a negative experience.
A paid collection can hurt your credit report and prevent loan approval temporarily.
When was the collection account paid off? When did you file your dispute with the credit reporting agencies?
Paying or settling a debt in collections can lead to a better credit score and overall lender impression in a brief period of time. In the very short term, settling or paying a debt may have an immediate negative impact on your score. Depending on when you resolved the collection account at issue, the recency may be what is causing automated underwriting to trigger a decline on your refinance. Speaking to the loan officer about the situation and getting them to take a more manual underwriting approach may get you past the goal line with your refi.
Were you told explicitly that the paid collection on your credit report is why you were declined?