You may be happy to learn that a common misconception held by even financially savvy individuals is that a bank’s decision to lend hangs solely on a person’s credit score. The credit score is certainly an important part of the approval and pricing criteria, but generally it is not the sole determining factor.

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Rather, the credit score is part of a number of factors lenders examine in a process called “underwriting.”

Underwriting is defined as the analysis and process used to determine whether to lend to someone. Every lender has its own criteria for who qualifies for a loan. Among the criteria beyond credit scores that a lender may consider are:

• Down payment
• Income and expenses
• Employment history
• Cash on hand
• Collateral

The criteria that a lender uses to determine whether you qualify for a loan − and at what terms − is for the most part in the hands of the lender or credit grantor. Your ability to ensure that the information in your credit file is up to date and accurate is within your control.

Therefore, it is important to focus your time on what you can influence. You may not be able to change the amount of cash you have available for a down payment, but if there are issues with your credit report, you can take steps to have them rectified. Making sure your credit history is accurately reflected in your credit report may improve your score enough to qualify for a loan with a lower down payment or a more favorable interest rate. Broadly speaking, understand that while your credit score is indeed a major factor in a lender’s decision to grant a loan, there are others as well.

[Related Article: Rebuilding Credit in a Hurry - Is It Possible?]

In the meantime, always seek to practice prudent financial management and pay bills on time. However, having a diminished credit score doesn’t always mean you are frozen out of the credit market.

Each lender has its own lending goals. For example, there are a number of lending institutions that specialize in providing loans to higher risk borrowers. In particular, there are many lenders that specialize in automotive loans to higher risk borrowers who tend to have lower credit scores.

Lenders also have different “score cut-offs.” This means that one lender might offer loans to consumers with VantageScore credit scores as low as 700, whereas another might grant loans to consumers with VantageScore credit scores lower than 700.*

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Although you can research which lenders have which score cut-offs, that information may be difficult to find as it is frequently not publicly available because lenders have additional criteria they take under consideration. A better usage of time and energy would be to practice financial management that builds good credit history. That history will obviously be reported by lenders into your credit files, thus improving your credit scores.

Here again, stressing what is in the credit file will pay greater dividends than having a razor sharp focus on your credit score.

* The VantageScore model’s range is 501 to 990.

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If you’re facing tax headaches because you received a 1099-C for cancellation of debt income, you are not alone. An estimated 6.3 million of those forms have gone out to taxpayers and they are creating all sorts of confusion. It’s a big mess, and the IRS isn’t exactly handing taxpayers a broom. If you’re among the millions struggling with these forms, take a look at the resources we’ve put together for you here.

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For a quick overview, start with our Infographic: What to do if you Receive a 1099-C.

If you received a 1099-C, then read this in depth article: 1099-C In The Mail? How to Avoid Taxes on Cancelled Debt which will explain how you may be able to avoid paying taxes on this “income.”

[Tax Help: More guidance, deductions, and returns with H&R Block]

If you received a 1099-A, most likely due to a foreclosure, then you’ll want to read 1099-A In The Mail? How to Avoid Taxes on Cancelled Debt. A related article, More Confusion Over the 1099-C talks about whether Home Affordable Foreclosure Alternatives payments are taxable, and what happens when private mortgage insurance (PMI) is involved in cancelled debt.

If you filed for bankruptcy or had a student loan forgiven, then hopefully this article, Just Received a 1099-C? Don’t Freak Out! will give you the additional information you are looking for.

If, like many of our readers, you have received a 1099-C for a very old debt, then my article 1099-C: The Worst Tax Mess of the Year? is for you.

Finally, I would be remiss if I didn’t warn you that the mess these lenders are creating can also increase your chances of being audited. I explain why in 1099-C Wrong? Taxpayer May Pay With An Audit.

Thanks so much to our readers who have shared their questions, comments and frustrations. I wish we had all the answers, but we don’t. It’s clearly something the IRS needs to fix, and fast. If you’re facing financial problems or hardships due to a 1099-C, or if you can’t get straight answers to your questions, I’d encourage you to contact your elected officials in Washington and let them know what’s going on.

And take heart: maybe it won’t be as bad as you think. One of our readers who first wrote in “freaking out” when she got one of these forms now writes:

Just want you to know I made out okay with my taxes regarding the 1099C…….not as bad as I thought it was going to be……so I will pay off what I owe the IRS………at least I will be able to eat in the following months……….I have certainly learned a lesson in this experience.  Never want to have this happen again.

Hopefully you’ll find a way to put this behind you as well, without resorting to an all Ramen Noodle and peanut butter diet.

Image: Linzi Clark, via Flickr

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Sometimes bad credit happens to good people. A reader recently wrote to us about a problem she was having with a medical collection account on her credit reports. While traveling, she saw a physician who misdiagnosed her and the following day she wound up in the emergency room. She never received a bill from the original doctor, though she did send him a dispute letter. She says:

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I did this because I was upset that I was sent away and then had to spend thousands at the emergency room a few days later.  I figured that it was worth a try and that if he really wanted to argue the small $80 charge that I would pay it if they sent the statement.

What happened next is not unusual.

About a week ago, I receive a letter from a collection agency. .. I sent in an official “Dispute” letter to them due to the fact that I have never received a statement from the Physician’s office. .. The collection agency sent me a statement from the doctor’s office that had the wrong address on it.  The city was not even a city where I have ever been before.  I am not sure how they would have a complete incorrect address, as I filled out paperwork that has my current address on it, not to mention my insurance information has the correct address on it.   At this point I really do not know what to do.

Should I just pay the small bill ($88) to the collection agency and request that they do not turn in any of this information into the Credit Bureau?  Or if I keep disputing this charge do you think that I have a chance of getting it removed due to the proof of the wrong address on the statements and copies of all of my letters? “  – Marilyn (name changed for privacy)

Sadly, having a collection appear on your credit report for a medical bill you never received is all too common. There is no federal law that specifically prevents this practice, and over the years we’ve received many complaints from individuals for whom the first time they heard about about an unpaid medical bill was from the collection agency asking them to pay it.

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I spoke with Marilyn and we discussed her options. She already understood that even if she paid the collection account it would stay on her credit reports and could hurt her credit scores for a long time. I pointed out to her that FICO ignores collection accounts with original balances of less than $100 when calculating credit scores, but that’s only in more recent FICO scoring models.

I explained that the collection agency may be willing to agree not to report it if she would pay it in full, but I told her that it was essential to get any agreement like that in writing before she paid. Otherwise she would be stuck – and have no negotiating leverage. Collection agencies certainly aren’t required to agree to those kinds of requests, but it never hurts to ask.

At that point, Marilyn said that the collection agency had been pretty pleasant to deal with so she decided to give it a try. Here’s what happened next:

They informed me that I would not be able to receive such letter because they do not send anything out like that in writing.  These people are ruthless.  She said that they would be turning everything into the Credit Bureau by the end of the month.  I guess at this point do I continue to dispute the debt?  If I contact the Doctor’s office directly can they do anything at this point since they have sold the debt to this collection company?

At that point, my suggestion was that Marilyn talk with the doctor’s office and try to get them to take the account back from the collection agency. I told her she could agree to pay the doctor’s office directly. Considering that they never sent her a bill, it seemed like a reasonable request. She agreed, and soon after she shared news of her success:

I have just gotten off of the phone with the Physician’s office.  They have agreed to call the collections office that they turned my debt in to and withdraw my amount.  I asked for written confirmation… Hopefully nothing has been turned into the credit bureau as of yet…

I cannot thank you enough for all of your assistance that you have provided regarding this issue.  I have learned that in the future I will probably not “get smart” and dispute a doctor’s office visit unless it is something that is very significant.  I have never had so much stress over $88 dollars in my life!

While that is great news, what worked for Marilyn may not work for you. If you are in a similar situation, don’t hesitate to contact a consumer law attorney with experience in credit reporting issues for help.

Do you have a success story of your own to share? Send it to me at creditexperts@credit.com.

Image: Joelk75, via Flickr

[Related Article: Correcting Your Credit Report]

It may sound strange coming from the president and CEO of a credit scoring company, but when I meet someone obsessing over his or her credit score, I always tell them the same thing: don’t worry so much about being up 10 points or down 20. Instead, focus on the direction your score is moving in and investigate how individual items in your history are helping or hurting your credit profile. Once you put that knowledge into action, and can do more of the positive behaviors and minimize the negatives ones your good score will come. Here’s how it works.

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Credit score models like VantageScore® are “generic” models, meaning they are made available for use by all consumer loan providers. Generic credit score models calculate a score by running a consumer’s payment and debt management information found in their credit file through a complex mathematical formula to derive a 3-digit number. Most credit score models result in a number − the higher the number, the better the score. And if the consumer properly considers the information in the credit file, and manages debt behavior in a responsible manner, the score should improve.

Most lenders report consumer payment and debt behavior to three separate national credit reporting companies (CRCs), Equifax, Experian and TransUnion, which each maintain a credit file on you. That credit file information is combined into your credit report at each of the CRCs and is used to calculate your credit scores. As credit file information is updated at each CRC, your credit report is similarly updated, and as a result, your credit score may change.

The most important step is to be sensible about your debt management so that lenders don’t report negative information to your credit file. Even a single 30-day late payment on your report will show up on your credit report and can negatively impact your score.

You also want to thoroughly examine your credit reports on at least an annual basis for accuracy. Check your credit reports at each of the three CRCs once a year for free at annualcreditreport.com. Each report you receive will also provide you with the steps needed to address any issues you find. You can also use a website at any of the CRCs websites or Credit.com to monitor your credit throughout the year.

Finally, another reason why I tell people to focus on credit reports over credit scores is because there are simply so many scores out there. Among generic models, there is the VantageScore model, multiple FICO models, and among others, the CRCs also provide their own credit score models to lenders. Each credit score model may differ in terms of the weightings of certain factors or how it is constructed. For example, a model might place a greater emphasis on the balance of your credit card. Simply, “your credit score” is not just one score.

Each lender chooses which credit score model to use as part of their evaluation of credit applications.

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However, all the credit scores come from one place: your credit file. So rather than comparing your various credit scores all the time, it’s more productive to make sure the information in your credit file is up to date and accurately reflects your prudent debt management steps.

Though I started out by saying “don’t obsess over your credit score,” ultimately, credit scores do matter. They are an important part of our financial well-being and having a good credit score can literally save you thousands of dollars over the course of a loan because a lender might view you as a higher risk if you have a lower score, and as a result, might charge you a higher interest rate. Plus, having a “directional” idea of your credit score can be useful, especially if you are going to apply for a loan in the near future. Obtaining your credit score from a credible source can help you know what to expect as a lender reviews your application as one part of its underwriting process.

Having said that, monitoring and considering the information in your credit reports on an ongoing basis, as well as remaining responsible with debt management, are effective ways to retain and/or improve your credit profile. Make your payments on-time, don’t keep a high credit card balance or apply for more credit than you need, and routinely check your credit file to ensure it accurately reflects your credit history, and then your score should take care of itself.

[Related Article: Understanding Your Credit Score]

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Taxpayers who get a 1099-C listing cancellation of debt income have enough to worry about. Their main concern: “Do I have to pay taxes on the reported amount?” They shouldn’t have to worry that a lender’s sloppy practices could also be setting them up for an audit. But that’s precisely what may happen when lenders send out 1099-C’s that are wrong and won’t correct them.

[Tax Help: Get step-by-step help and maximize your return with TurboTax]

This isn’t a far-fetched scenario, unfortunately. There are a variety of problems taxpayers have raised in comments to my previous stories. They’ve told us they are getting 1099-C’s for:

• Debts that were long ago discharged in bankruptcy, but the lender is claiming there is no record of the discharge.
• Homes that were foreclosed, but the “fair market value” listed on the form is way off.
• Very old debts that should have been reported as cancelled many years ago.
• Debts that include inflated fees or other charges that cannot be accurately accounted for.

[Related Article: 1099-C: The Worst Tax Mess of the Year?]

What If the 1099-C Form You Receive Is Wrong?

Scott Estill, a former IRS Senior Trial Attorney tax attorney now with Estill and Long LLC, explained what may happen if a 1099-C is wrong:

If a lender issues a 1099-C that is wrong and refuses to correct it, I would advise the taxpayer to correct it himself or herself so that the return contains accurate information.  The problem thus occurs because the information the taxpayer reports does not match the 1099-C and thus the chances of an audit are great in this situation.  As such, the taxpayer will need to attach supporting documentation to the tax return showing the discrepancies and what was done to resolve them and prepare an accurate return (if the return does not match the 1099 and the IRS wants to audit this- the supporting documentation may help explain what was done and avoid an audit).

Anytime a taxpayer needs to reconstruct records to make them accurate, they should keep good notes of who they talked with at the lender (names, dates, substance of conversation) for proof if audited.  The taxpayer may need to get an appraisal done (if the fair market value of real estate is disputed on the 1099-C) or obtain other documentation depending upon which part of the 1099-C was wrong.  The documentation should let the IRS know of the nature of the discrepancy and what the taxpayer did to try to resolve it.  Other than this and trying to get the lender to make the necessary corrections, there isn’t much a taxpayer can do to fix the situation!  But if questioned by an IRS employee, the taxpayer can say that they did not file the 1099-C that was reported because it was inaccurate- and the IRS wouldn’t want us to file an incorrect return, would they?

Unfortunately some of the taxpayers who are getting these inaccurate forms no longer have documentation to back up their side of the story. Think about it. Would you be able to dig up documentation of a debt wiped out a decade ago? I’m a paperwork packrat, but I’d have trouble pulling out ten-year-old account information.

And don’t lenders have some responsibility here? Mike wrote to us about a 1099-C he received from his bank. The bank had waived overdraft fees incurred when he had a run-in with a payday lender. Even though the fees were questionable to begin with, and the bank agreed to waive them, the bank sent him a 1099-C, five years after the fact. He asks,

Can I 1099-c them back or sue them for it?

It’s a good question. But getting an answer may be costly.

Image: Warner Brothers

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