Clean Up Your Credit Now or Pay Later

It has been my experience that buyers who have unpaid debt, aka, collection accounts, write-offs, repossessions, and have done nothing to have them removed from their credit report end up paying these debts again in order to buy a house!

That’s correct.  You could end up paying that same debt twice.  Here’s what happens.  You have health insurance provided by your employer to cover your medical visits and emergencies.  During your office visit you pay your share and expect the health insurance company to pay the balance.  You expect everything is fine since you never receive a statement in the mail that your insurance company has not paid the balance that is their share per your health contract.

In the majority of cases, the bills have been paid but, in some instances, the statement sent to your insurance company may have been coded incorrectly and if that happens the bill will go unpaid.

Your doctor, hospital, clinic or ambulance company are required to use a specific code to detail the service provided and the insurance company will then pay the statement in return.  The statement will go unpaid until the correct code is noted on the billing statement to the insurance company.  And, this is where most issues lie.

I would advise you to be proactive and diligent with your doctor, hospital, clinic or ambulance company to be sure they have provided the correct code required so the account will be paid in full in a timely manner.  Preferably, shortly after you received that particular service.

If paid late or not at all due to the lack of correct coding, this bill will be considered delinquent and after a period of time may be written off as a bad debt.  The bad debt could be sold to a collection agency who buys this type of product and will pursue you, not the insurance company.

Your credit will be affected.  NOT the insurance company.  Any outstanding, unpaid, written off debt will lower your credit scores.  And, in this instance, all that was needed was a correct code on the billing statement from your doctor, clinic, hospital or ambulance company to the insurance company and this would not become your nightmare.

To clean this up requires great patience and time.  Lots of time.  If years have passed, and if your company has switched to a different health insurance company, it can be cleared up but will take some time.

Your old health insurance company has to revisit their expired files and resurrect your account which they will tell you could take from 2 weeks to a month to do.  Meantime, if you are waiting for a mortgage commitment you are running out of time.  Your interest rate lock could expire causing you to have to relock at a greater expense.  Your credit documents used by the underwriter could expire resulting in the entire procedure having to start from the beginning.  Even worse, your loan could be denied.

My advice is:  do not apply for a mortgage until you have cleaned up any delinquent and outstanding debt on your credit report.  You will save yourself a lot of anxiety by making sure your credit report is in excellent condition prior to making any offer on a property and getting involved in the mortgage application procedure.

Keep in mind the following:  (1) you do not want to pay any expenses that your health insurance company was responsible for; (2) you do not want to run the risk of having your mortgage loan denied due to unpaid debt that was not in your control; (3) the act of buying a house can produce a lot of anxiety so you certainly do not need to add to that load; (4) clean up any unpaid debt on your credit report before you even start looking at houses; (5) keep good records because you do not want to pay old debt twice.

Clearly, the first step is to get a copy of your credit report so you can see for yourself if there are any issues on it that will cause you to have a higher interest rate due to low credit scores, or possibly to have a loan denied.  You want a credit report with all three major credit bureaus reporting:  Experian, Equifax, and TransUnion.

You may want to contact a lender to get Pre Approved.  This is the first step towards homeownership.  This Pre Approval meeting will expose you to your credit history and credit scores, which loan product will be best for you and you will learn about the mortgage application process.  You will leave knowing what you have to do to tweak your credit, whether you will need a specific amount of funds to continue, and what to expect.  You will become an informed consumer.