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?
—Leo
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?
About Michael BoveeMichael started CRN in 2004 with a mission to provide people in need with detailed debt and credit help and education. Michael has participated as an expert panelist in federal consumer protection rule making, collaborated on state law changes governing debt consolidation, has worked as an expert witness in court matters related to the debt relief industry. He is available to speak with you about your financial struggle and helps people resolve their debt problems daily.
We were pre-approved for FHA loan from out of state lender. (scores between 620-640). Seller requested a local lender so we did, sent 47 pages of supporting financial documents. (she asked for 2 years, I sent 3 years). Got preapproval letter. Found 3 medical bills total less than $500 on report after pre-approval and offer accepted on the home. The inspection was completed on Monday and the earnest money has been paid. We are slotted (if the planets align just so) to close July 16, 2019. On July 1st the collections will be paid in full. I tried to reach out to my lender, gave her 48 hours to respond before I submitted payment authorization. I will have proof by bank statement and/ or letter of satisfaction from collector. In the “crunch” of time and when accurate bank statements are ready, I wanted to have this paid before we enter final stages. Lender has not answered my question about going through pre-underwriting either. I do not feel she is trying to pull my chain, it is the end of the month and people are trying to close ASAP. Can my decision to pay them keep me from getting the house?
I doubt it Leigh. Post an update in this thread though, as it will help others reading this later on.
I can’t seem to have the paid off collection deleted off my credit report. I wrote a million goodwill letters but nothing seems to work. What can I do next? This is holding me back from getting a good interest rate for a new car ugh. Any advice would be appreciated. Thanks in advance!
Who is reporting the collection account? When did you pay it off?
Afni and paid it early this yr. I sent them a goodwill letters after letters but they declined it. Next I wrote to Afni and credit bureaus and i denied is mine and they’ll have to proof it. Fingers crossed…im getting frustrated fighting with them and the whole situation.
Okay, thanks. Who are you trying to go through for the auto financing? What rate are you being quoted?
All things being equal, a single negative trade line that was updated to show as a paid collection a year ago, should still allow you to go out and compete for a competitive car loan rate.
So my husband has a medical collection on his report for $202. It has a balance date of 10/2012. I wrote to them (when I got the first collections bill) and said I wanted a full detailed bill of all payments I had made on this account, because we did not realize we still owed them money. They never told us it was going to collections. So when I got the letter for the collections (Dynamic Collections in Washington State) that is what I asked for. They then sent me a letter saying they would stop contacting us. And i haven’t heard from them since. But it is the only negative on my husbands report. Just say’s “consumer disputes this account information”. I receive no calls or bills. So what SHOULD I do….let it lie or contact them to get it off his credit report?
Do you have any intention of paying, or do you dispute the legitimacy of the entire debt? Are you looking to finance a major purchase now, or in the near future? What is your husband’s current credit score?
We could pay it off it would help our credit. I just find it weird they don’t call or send bills. So what is their stance? I just wanted a full detailed bill of what I had paid and what I still owed since I had no idea we hadn’t paid $202 of it. No major purchases, I did try to apply for a personal loan to pay off debt and was denied. No we own our home and won’t be moving, but we get denied for loans and credit cards. My mom had to go on a loan for us to buy a car. His credit score is 662. Mine is like 640. We have a lot of debt and it looks really bad. We are current on all payments, just too much debt. Would love to know what we could do about that too.
I would encourage you to talk with a credit counselor about how you can get your monthly bills consolidated into a lower, and set payment. If there is a plan that works for you, you could see your way out of the debt mill fairly quickly. Call 800-939-8357, press option 1, and have a list of your bills in front of you. Talk to the counselor about paying that old medical bill too.
Thank you Michael I will call next week for sure. We have been running this rat race for many years and just can’t get ahead. AND to top it off, my husband just had surgery in December and all the bills have finally come in and we owe over $5,000!! That’s with pretty good insurance too. UGH! It just never gets easier! Thanks for your help!
LeAnne
The last payment on the collection goes back to 2009 so it’s not even a recent matter
Leo – Lenders are certainly more risk wary in today’s economy, but even knowing that, being declined a refi if everything else in your app is good to go, based on a paid collection account for $130 from 4 years ago, does not readily compute.
Let me know about the written denial letter and what it contains.
Yes, the credit union refuses to move ahead. They are disputing the comment in my report which say ‘consumer disputes the issue’ which is not accurate because while I did not agree with decision to send to collections I don’t currently dispute matter. Why does the collection agency get to speak on my behalf? Bureaus refuse to remove comment because collection agency put it there.
Sending a dispute to the debt collector could have led to them reporting as much. Having a consumer dispute on file with the credit bureaus is not typically the issue with loan underwriting approval, where having the collection entry itself is.
If you were denied credit you are entitled to know on what basis through a written denial and copy of your credit report. Did the credit union provide you a copy of this?