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43 Million Americans Could Get a Big Credit Score Boost Soon — Here’s Why

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

 

Some 43 million Americans might see their credit report improve soon, thanks to new policies put into effect by the “Big Three” credit reporting agencies — Equifax, Experian, and TransUnion.

As of Sept. 15, credit reports will no longer include medical debts that are less than six months past due.

This is a big deal. At least one unpaid medical collection appears on one in every five credit reports, and these medical debts negatively affect the credit scores of as many as 43 million Americans, according to a 2014 study of collection data by the Consumer Financial Protection Bureau (CFPB).

This is the second major change to credit reporting this year that could help boost millions of Americans’ credit scores. As of July 1, the major credit reporting agencies agreed to remove from consumer credit reports any tax lien and civil judgment data that doesn’t include all of a consumer’s information.

This new medical debt reporting change, however, will have a far greater impact. Research has shown that many consumers’ medical debts aren’t all that representative of their creditworthiness, which helped drive the bureaus to make the change. In fact, around 50 percent of Americans with medical collections on their credit report had no other significant blemishes on their credit report, according to the CFPB.

And even though the cost to your credit can be dire, most Americans don’t actually even owe that much for their medical expenses — the average unpaid medical collection tradeline is only $579, according to the CFPB’s 2014 study. This means many consumers are taking major credit hits for a relatively low bill.

Additionally, the agencies have promised that if your insurance company ultimately pays off a medical collection, this debt will be removed from your credit report altogether. Both of these changes will provide more time for insurance claims to process, says John Ulzheimer, a consumer credit expert based in Atlanta.

Expect to see an impact soon

The changes officially take effect on Sept. 15, and their influence will be felt fairly immediately. These new policies are both immediate and retroactive, meaning no medical debt from within the last six months should show up on your credit report after that time.

Jenifer Bosco, a Boston-based staff attorney with the National Consumer Law Center (NCLC) who specializes in medical debt, recommends using these changes as an opportunity to check your report now. That way, you can see if there are any collections that need to be altered because of the new debt practices.

Bosco suggests viewing your credit report for free by filling out an online request with Annualcreditreport.com. You can check out MagnifyMoney.com’s online guide for a bank-by-bank breakdown of how to easily receive your FICO Score.

The immediacy of this agreement is important, because medical collections can be a long and arduous process. Bosco says the new 180-day window is especially helpful because it provides a cushion for consumers who are trying to work through expenses with their insurance provider.

“It’s definitely helpful for people who might actually just have a debt and owe the money, but also people who are going through a lengthy process with their insurance company to get something covered under their policy,” Bosco says.

How much will credit scores improve?

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While it’s difficult to measure exactly how much unpaid medical bills can affect your credit, Ulzheimer says these debts are typically just as detrimental as other collection types. “For example, the impact can range from severe, if you don’t have other unpaid bills on your credit report, to nominal, if medical bills are just one of many outstanding collections,” he told MagnifyMoney.

Having good credit often makes the cost even higher. According to the CFPB’s collection data research, an unpaid medical bill of $100 or more can drop a credit score of 680 by more than 40 points, but the same bill could drop a score of 780 by more than 100 points.

Consumers who notice incorrect medical debt after Sept. 15 should send a dispute to the credit agency that falsely reported it, the NCLC recommends in a press release. If this doesn’t work, you can reach out to the CFPB. If your state’s attorney general was one of the offices involved in the agreement, you can direct your issue to them.

The CFPB research also found that the lack of price transparency and complex insurance coverage systems make medical bills often a source of confusion for consumers. People can often incur debts simply because they aren’t sure exactly what they owe or who they need to pay. Having more time to figure out what you owe, pay your debts, and work through collections with your insurance company can be a major financial benefit, Bosco says.

Bosco also says the changes go beyond specific circumstances and that these protections will be helpful regardless of your situation.

“It benefits all consumers who have medical debt,” she says.

Better credit for all?

The changes are the result of two separate settlements — one with the Attorney General of the State of New York and one with the attorneys general in 31 other U.S. states — but Ulzheimer says the changes are universal.

This means that regardless of what state you live in, credit agencies can’t fault you for medical debts that are less than 180 days old, or for collections that are ultimately handled by your medical insurance.

Hopefully, these changes mean there will be less medical debt bogging down Americans’ credit overall.

The agreement was reached voluntarily, which means there is no sweeping federal or state law or regulation guiding these changes but shows the credit agencies are on board.

“We have never hesitated to go beyond the letter of the law to voluntarily improve the existing credit reporting environment,” Stuart Pratt, the president and CEO of the Consumer Data Industry Association (CDIA) said in a press release announcing the changes. The CDIA represents the country’s consumer data industry, which includes the three major national credit agencies.

Still, this decision is incredibly important considering how instrumental the “Big Three” are in determining credit scores.

The federal government considers Equifax, Experian and TransUnion to be the country’s major credit agencies, and you’re entitled to a free report from all three companies each year. The information that shows up on reports from the “Big Three” carry major weight, so having a chance to improve your score with these groups can go a long way.

To aid this process, the NCLC has created guidelines — called the Model Medical Debt Protection Act — to help protect consumers from unfair medical collection procedures. The guidelines can be used as a standard for improving their medical debt practices even further.

Dillon Thompson
Dillon Thompson |

Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here

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How to Donate to Hurricane Relief Without Getting Scammed

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When natural disasters strike, Americans pour in money and support to help the victims.

But while relief efforts are uplifting, they come with a caveat for anyone looking to contribute: How can you give money safely and securely to people who need it most?

Fundraising scams and fake charities often show up after hurricanes and other disasters. These practices aren’t new either — less than six months after Hurricane Katrina hit the Gulf Coast in 2005, the FBI had opened 100 investigations into fraudulent fundraising sites.

“After disasters like this, we do often see more organizations popping up, and it does take some time if there are scams out there to identify what they are,” says Katelynn Rusnock, the advisory system manager for Charity Navigator, an independent charity watchdog organization. Based in Glen Rock, N.J., Rusnock specializes in communicating potential wrongdoing found within charities.

So how can you make sure you’re not donating to a fake organization? Here are five ways to avoid fundraising scams.

Make sure the charity is legitimate with charity tracking sites

Learn about the organization before you give away any of your money, Rusnock recommends. Charity Navigator, and similar sites such as CharityWatch and GuideStar, maintain up-to-date listings of registered nonprofits, which you can use to check whether or not an organization is legitimate.

When in doubt, Rusnock suggests giving to larger nonprofits that have contributed to previous major disasters.

“Larger organizations that often respond to disasters are usually fairly equipped to deal with these types of things,” she says. “They have the teams with the expertise, and they’ve got the experience to do this well.”

Look up their employer identification number on the IRS website

You also can look up charities by checking their employer identification number (EIN), which will show if they’re registered with the Internal Revenue Service. Rusnock says you should be able to find this number on an organization’s website, and recommends asking them directly if it isn’t readily available. To help verify these groups, the IRS has created a tool on its website for searching charities by their EIN.

Check scam alerts from the Federal Trade Commission

Additionally, the Federal Trade Commission frequently updates a list of scam alerts so you can stay aware of recently reported groups.

The FTC reports that a flood insurance scam is already proliferating in the wake of Hurricane Harvey. Homeowners and renters get robocalls telling them their flood premiums are past due and that they need to submit a payment in order to get relief from their insurer.

You can sign up to get scam alerts sent directly to your email.

Beware of fake social media fundraising

While social media can be a helpful source of information about ways to give, and seeing friends talking about donating online can make it seem like an enticing option, it’s also unregulated and can be exploited by scam artists and phony nonprofits.

In times of heightened need, scammers using fake Facebook accounts and Twitter bots to post spam or malware links can be some of the biggest offenders.

Phishing is also a common concern, according to the United States Computer Emergency Readiness Team, a division of the Department of Homeland Security. Fraudulent organizations may send out emails or texts asking for direct donations or personal information, which are often attempts to steal a person’s identity. You should avoid giving out personal information or clicking on links from unknown sources.

Look out for red flags, like requests for payment via wire transfers

It’s also smart to be conscious of how a charity wants you to donate. In the FTC’s guide for avoiding fundraising scams, the organization warns that groups asking for payment in cash or through a wire transfer are more likely to be fake. Additionally, charities that offer to send an overnight courier to collect money, or use other tactics to pressure you to act quickly, are usually worth avoiding.

To combat this, Rusnock says it’s best to give directly to the charity through their own website, as opposed to using outside channels, such as social media or emails, that may or may not be associated with the organization.

Crowdfunding could be deceitful, too. According to the Better Business Bureau, campaigns on sites such as Kickstarter and Indiegogo can be unreliable, as it’s hard to determine whether or not a source is trustworthy or not. Still, there are some reliable ways to use these services, and GoFundMe has even set up an official page specifically for Hurricane Harvey relief and for Hurricane Irma relief. GoFundMe also offers to refund customers if they find out their donations weren’t used as promised.

Once you choose a legitimate charity, Rusnock suggests sticking with the organization. While many people tend to only donate immediately after a disaster strikes, she recommends signing up for recurring payments, or checking back in with the organization months after your first donation to learn about their current needs.

“A lot of people want to go out and donate after this happens, but we encourage donors — if they’re able to — to continue to support that organization even once the crisis is no longer in the news,” Rusnock says. “Oftentimes the charity is still responding long after attention has shifted away.”

 

Dillon Thompson
Dillon Thompson |

Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here

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Wells Fargo Discovers 1.4 Million More Fraudulent Accounts

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Wells Fargo’s fraudulent practices have put the company in the public spotlight once again. The bank announced Thursday that employees wrongfully created up to 1.4 million more unauthorized accounts, on top of the discovery last year that employees falsified more than 2 million bank accounts without customer permission. 

According to a company statement released Thursday, an expanded analysis of new accounts opened between January 2009 and September 2016 revealed a total of 3.5 million “potentially unauthorized consumer and small business accounts.” That’s almost 70% more fraudulent accounts than previously thought. 

The company said Thursday it will provide customers with $2.8 million in total refunds—in addition to the $3.3 million the company pledged last September after the initial scandal was unearthed.

How we got here

After the original news broke in September 2016, Wells Fargo revealed it had fired 5,300 employees in recent years for behavior related to the creation of unauthorized bank accounts. Employees who created the accounts did so in order to increase their earnings and boost sales, a motivation that was later attributed to the hypercompetitive corporate culture at one of the worlds largest banks 

So how did Wells Fargo find more fraudulent accounts almost a year later? The bank says it learned about the additional fraud by studying a total of 165 million accounts created since the beginning of 2009, an expansion on the 93.5 million examined last September. The study also found more of these unauthorized accounts incurred fees and charges than originally thought—190,000 versus the 130,000 initially reported last year. 

Unauthorized accounts aren’t the only damaging news the company has dealt with recently. In the past year, the bank has been accused of scamming mom-and-pop shops, admitted to charging up to 570,000 customers for auto insurance they didn’t need, and settled a $108 million lawsuit for concealing loan and mortgage fees from veterans.

What to do if you are a Wells Fargo customer

To determine whether or not you’ve been a victim of these unauthorized accounts, check your credit score and your bank’s website, which will show every account opened in your name.

Those who had accounts opened in their name without their permission should inform Wells Fargo immediately, as filing a complaint will put them in the pool of customers who will all split the bank’s $6.1 million of promised restitution. These customers will also receive a portion of the $142 million the company has agreed to pay as part of a class-action suit finalized in April. 

Wells Fargo’s response

Wells Fargo CEO Tim Sloan apologized Thursday in a press release for the San Francisco-based company’s failings and attempted to reemphasize some of the bank’s key values.   

“Our commitment has never been stronger to build a better bank for our customers, team members, shareholders and communities,” Sloan said in the release. 

Despite expressing remorse, the company has fought privately to avoid dealing with the repercussions of its actions. Currently, Wells Fargo contracts contain a provision that forces customers to settle disputes with the bank through arbitration, as opposed to through class-action or individual lawsuits.   

This essentially means that any customer who believes they have been treated unfairly is forced to settle with the company on its own terms, rather than on a level playing field in court. While the Consumer Financial Protection Bureau (CFPB) recently drafted a bill that would prevent this practice, Congress may vote to overturn this measure before it becomes law, thus allowing Wells Fargo to continue dodging class-action suits, says Amanda Werner, an attorney for the Washington, D.C.-based Americans for Financial Reform and Public Citizen. Werner specializes in combatting forced arbitration rules.

Ways to avoid fraud

In order to prevent your bank from getting away with similar practices, Werner suggests checking your credit score at least a few times each year. The credit score may indicate if any unauthorized accounts have been opened in your name. You can also get a free annual credit report (which contains more detail than a credit score) from each of the major credit reporting agencies at AnnualCreditReport.com.

Additionally, Werner recommends taking any problems you may have with your bank directly to the CFPB, because its complaint process is typically much faster and more efficient.    

“I’ve heard a lot of stories from people who spend hours on the phone with customer service trying to settle something, and then they file a complaint with the CFPB and suddenly the bank is ready to listen to them,” Werner says.  

How will other banks respond?

Beyond negative press, Wells Fargo has suffered few consequences for its recent scandals. While speculators are concerned about the company’s reputation hurting its overall value, the bank’s stock has continued to grow, albeit a bit more slowly than expected

Werner worries this, along with the overall lack of legal action against the company, will send the wrong message to other banks dealing with similar fraudulent practices.

“If I’m another bank and I’m doing something shady—but maybe it’s not as bad as 3.5 million accounts—then I feel like I can get away with it because Wells Fargo got away with something worse,” Werner says.

Dillon Thompson
Dillon Thompson |

Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here

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