Ep. 16 Collections, Credit Scores & Homeownership with Cynthia Webb

In this episode of Housing Matters, host Roman Tiger Abeyta sits down with Housing Trust HUD-Certified Counselor Cynthia Webb to discuss how collections impact your credit score, mortgage eligibility, and homeownership goals.

Cynthia shares practical advice on dealing with collection agencies, understanding your rights as a consumer, negotiating outstanding debts, and why paying a collection isn't always the first step. She also explains how Housing Trust counselors help clients evaluate collections as part of the homebuying process and create a plan that supports long-term financial success.

Whether you're preparing to buy a home or simply looking to improve your financial health, this episode offers valuable insight into navigating collections with confidence.

Learn more about The Housing Trust: 

https://www.housingtrustonline.org/

Transcript

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This is Housing Matters, the Housing Trust podcast, where we share stories and insights about affordable housing and making home ownership a reality. I am your host, Roman Tiger Abeta. Welcome to another episode of Housing Matters. Today we're joined once again by Cynthia from the Housing Trust. In her first episode, we talked about preparing for home ownership, and today we're diving into another important topic: collections, credit, and how they can impact the home buying process. Cynthia, welcome back. Thank you. So for listeners who have missed your first episode, can you reintroduce yourself and tell us a little bit about your role at the housing trust? Well, I'm Cynthia Webb, and I have been here this August will be three years. I'm a um certified HUD counselor and recently um got certified as a reverse mortgage counselor. So I'm just really excited for whatever my next certification is going to be here. Well, congratulations on that certification. That's awesome. So we want to talk about collections, Cynthia. What are collections and why do they have such a big impact on someone's financial future? Collections are just uh agencies' way of trying to collect money uh on debt that you haven't paid. And they usually go in phases for what they um when they start collecting, you know, like from one to 29 days, you know, past your due date, you're just late. But once you get to 30 days, then they call you uh your delinquent. And okay, so uh so a collection, let's use a practical example. Okay. I owe a company something, or I didn't make payments, I can't make payments. The company themselves, they first try to contact me and get it worked out. But if they can't, they'll just close my account and then send the due, whatever's due, as far as the bill, the outstanding balance to someone else, and they do the collecting for them, right? Right. And they actually, I think, pay for those collections. So these are agencies, that's how they make their money, uh, going to agency and and seeing who's not paying them and they buy those leads. They'll find oh, so they'll find a business, they'll talk to the business. Does anybody owe you money that hasn't paid or has stopped paying? And they'll they'll they'll they'll pay for that. They'll get that for they'll pay the business to give them that yeah, that account, and then they start doing the collection process. Right. And they already have money invested, so they're really gonna come after you because they've paid for those leads. So they need to get their money back for what they paid for the leads just right off the bat. Okay, so you said that they'll come and get you. So what are what are some ways the collection agencies try to intimidate and pressure consumers? And what rights do people have in those situations? Um, I not all collection agencies, but I see a lot of them as bullies. Okay. You know, um, if you grew up in the age, you know, back in the days before they had cell phones where you could record everything, yeah. You just get bullied all kinds of ways. Collection agencies are like that because they come at you, you don't know who they are, they don't know you, but all they know is they have your name on paper and they see money that they've already invested, and they're just trying to get the money. So they don't really even try to figure out do you owe this? They just want to get the money because they've invested money. So they just start calling you and harassing you and right. Um so if someone is contacted by a collection agency, what immediate steps should they take? Immediately they should ask them, and it's easy for me because I'm battling with a collection agency right now. Okay. Um, and I switch car insurance. Okay. Yeah. And so So you personally are are dealing with a collection agency. I just switched car insurance. That's all I did and went, didn't even have a day lapse, went to the other one. But the old company wanted still wants money because I didn't take someone who wasn't in on the policy with me. Okay. And they sold it to collection agency. So the collection agency calls and says, Okay, you owe this person money and you need to pay them. And I'm like, no, I don't. Can you show me the bill? And they was like, no, we don't have any of that information. We're just the collection agency. But they expect you to just pay them without proving to you that you actually owe this company money. Right. And that's why you got to ask right in the beginning: can you give me documentation? Show me when I had this debt created. Ask for that documentation right in the beginning. Because once they see that you want to fight, then they'll go back to the original person and you're gonna start getting them giving you documentation because now they're trying to make the dates match. Okay, so so they they won't do that up front. They're just gonna call, they're gonna try to get money out of you. And so when you ask for that, then the the original company that you owed the money to will then start providing you with information and making sure that the record is straight and you do indeed owe what the collection agency says you owe. Right. Okay, so how do collections impact someone's ability to purchase a home or qualify for a mortgage? Um, once you get a collection on your account, your credit score drops so much that um it's just uh either you're gonna have a really high interest rate or you just won't even be able to get the home because of your credit score. So it'll how how many points could it drop? It could actually drop up to 50 points just from a collection. Yeah. One single collection. One single collection. And it's really um hard because your first instinct, you know, if you get a collection or spent on your account is to pay it and and make arrangements. But collections are so different, you know, like you could have a collection, you decide you're gonna pay it, and it'll drop your credit score. So even though you you're gonna pay it. Even though you're gonna pay it, because it's kind of like a sleeping dog. He's been lying there, nobody even noticed him. And then when you go to pay him, you wake it up and you got a ding. Oh, we got activity. Oh, wow. And that activity is is addressing something negative. Can you ask the the collection agency uh about that and and could they do they have any control over how it impacts your credit rating? Well, it would determine how they uh eliminate it. Like if you just pay it and they show in your credit report that you had a collection that was paid, um, it could drop it. But if you could convince them to remove it completely from your credit report, then that's the best way. And that's kind of hard, but you'd have to really push and try to convince them that, you know, what if I paid you the whole thing? Will you instead of just showing it paid, can you remove it completely from my credit report? And and some collection agencies do have the ability to do that. Yeah, yeah. Some agencies do it, whether they do it or not, but they they do have that ability. So would you would you say it's a good idea to immediately contact a collection agency and make payment arrangements, or are there things people should understand first? Um, I would probably start with the credit brewers and see if they can tell me if I pay this collection, what's it gonna do to my credit? Is it gonna raise it? Is it gonna lower it? You know, what effect is it gonna? I would start with collect with the credit brewers before I even started with the collection people. Um, because if you're buying a home, usually they don't even uh add your collection, um, that amount to your to your liabilities until it's like over $2,000. So you can have a lot of small collection. If they're not hitting that $2,000 mark, they really won't um that liability wouldn't be added to your uh liabilities when you're applying. So the who are the credit agencies that you would contact? Um you have your Equifax, TransUnion, and Experience. Those are the three main ones. You would want to reach out to them directly and see if they can tell you. Um but if you have, let's say whoever you're applying for, you can ask them, can you go into the credit bureaus and see if I pay this collection, what it's going to do to my credit score? You can, you know, they might charge you extra to do it, but you can let them see before you even pay it. Because sometimes, you know, paying them it really doesn't help to pay. Really? It really, I mean, it really doesn't. But but if you if you owe the money though, you should pay it, right? Or it depends on the circumstance and why you owe the money to the city. It depends on the circumstance, you know. Sometimes it might be worth just because they're trying to get something that they're not entitled to. Okay, so what is the best way to contact the the credit bureaus? Is it just you look them up online and there's they have a contact number there or information online? If you have your credit report, um their numbers are gonna be on that on the back. Any creditors you have, all your contact numbers are gonna be on the back of that credit report. So if someone has pulled your credit, it all your contacts, anybody who's ever uh touched your credit, all their contact information is gonna be on the back of that report. Okay, and then the the um the so let's talk about the credit report. You need a credit report in order to apply for a mortgage. Right. And will and will the credit reports show collections, even if they're like 10 years old, five, five years old, and maybe you forgot about it or you didn't even know. And because maybe you moved or you just thought you had that bill paid. Will it show up on your your credit report? Right. Most of the time they're only supposed to be there for seven years. Okay, but it doesn't always get dropped off. Sometimes you have to do your due diligence, go in and you know, say this is past seven years, shouldn't this be removed from my credit report? Okay, okay. Again, let's let's recap. Okay. So you have a you you get a notice from a collection agency or a phone call, and then you kind of remember there is a situation and maybe you do owe money. You you would start. How would you start? Um, if I know I owed it, I probably would call and see if I can negotiate. With the company, the collection agency or the company you owe the money to? The original company. Okay. Yeah. And if I can't, if they already tell me that it's out of their hands, they've already written it off, then I would start with the uh collection agency. Because they just want their books clear, really, you know. And they may be willing to because maybe there's interest or fees or things that they can waive, or sometimes even what you owe, they could waive some of it. Right, right. Okay. And and a lot of times if you have all that going on collections, you might be headed towards bankruptcy or you know, something like that. And if you're headed that direction, nobody's gonna get paid. So, you know, if you let them know, you know, I'm really trying to get all this settled, I'm you know, I might end up having to do bankruptcy. What will you take for me to just get this off the book? So that's interesting. So you may not have to pay back what you originally owed or what the collection agency is saying you owed. So so start with the the original company that you that you owed the money to. Right. And then if they still have it, they may be able and would you ask them too if they'd be willing to lower the amount? Yes. Okay, so do that, try to negotiate there. And then they may tell you though it's already off their books and it's with a collection agency, so you need to contact the collection agency. Right. And then when you contact them, the do the same thing. Ask them if they'd be willing to negotiate because you can pay a lower amount. Right. Uh, and they may be maybe willing to do that. And a lot of times the collection agencies, they're not gonna be cooperative, you know, because they got all these people that come through, you know, they deal with so many people and they just keep them rolling and they don't really see you as an individual. Okay. And they may want to cooperate. So you might have to just let them know, you know, my financial wellness, it's not important to you. I need a supervisor. Oh, so you've been so ask for someone above them. Yeah, ask for somebody above them. Because obviously, you know, my financial wellness is not important to you, and you're not understanding what I'm trying to do because you called me and said you wanted to collect. So I'm trying to help you take care of this. So give me somebody above you. So, and then once you get to that person above, then you negotiate with them. You negotiate. And then uh, but and as part of that negotiation, you should ask them to remove this from your credit. Right, right. Okay, but then sometimes you have to just like maybe call um Better Business Bureau. You can call them and they'll tell you exactly like the insurance people have uh authority over them and they'll tell you what department is over them. So you can call them and then say give them the scenario, give them your paperwork, and then it may not even be the collection agency decision because it's to another level. Okay. Yeah. You have, you know, you have your different um agencies that are there for um bully collection agencies that that protect the consumer, or in this case, the person who collection agency is calling and saying owes money. You have all those agencies, and those are the ones you get in touch with. The better business will definitely send you in the right direction on who handles whatever the situation is. So, same type of thing. Go online, look for Better Business Bureau, and then once you get to that webpage, it'll have all kinds of information for you. Right. Okay, okay, that's that's good to know. Um, for someone listening who may be dealing with collections or trying to improve their financial situation before purchasing the home, what's one thing you would want them to keep in mind as they're moving forward? Um, usually when you get collections, it's a buildup. So you're not budgeting right or something has happened. So even before you get to the collection part, you know, you want to know what's happening with your finances. You want to have a budget. Um, you know, you every month you should be writing down every bill that you have and deciding who's gonna, you know, how you're gonna pay and how much money is gonna be left. So when you get to before you get to the collection, you should have done the budget and figured out your your finances and things. But uh, once you get to the collections, you just gotta decide, you know, how am I gonna pay it, who's gonna get paid first, and what's gonna keep my credit score up, especially if I'm gonna buy a home. Okay, so I'm I'm your client, okay, Cynthia. Okay. So I come in, I I submit all the paperwork to the housing trust. I you get my file. We have a meeting, our first initial meeting. Walk me through that meeting. I'm like, hello, Cynthia. I'm Roman, I want to buy a house. You have my credit score. Uh you see some collections on there. Counsel me right now. Tell me this is our first meeting. You've looked at my credit score. You think there's issues there, what are you gonna say to me? Well, I'm gonna look at the dollar amount of your collections and start right there. And if they're just a small amount, I'm probably not gonna worry too much about it. But if they're over $2,000, then we're gonna start looking at, you know, if you're gonna have to pay some of these. The first thing I'm gonna ask them is let's find out if you pay these collections, if it's gonna make your score higher or lower, because that's really what's important is it if you're gonna pay those collections because your objective is to be able to get a home and have a high enough credit score where your interest rate is good. Okay, and so who's gonna who are you gonna contact? Um, I am going to whoever pulled the credit. If we pulled it, I might just go right back into the uh agency site, you know, the Equifax or Equifax, wherever it's uh go into those sites, and you can actually just go right in there and just mark it, say if we pay this collection, what's the score gonna look like? Okay, and they'll tell you that. It'll tell you right then. Yeah, but if I didn't, whoever their lender is gonna be, we'll we'll ask them if they can check, if they start paying collections, what's this gonna do? Because it's all evolved around what's gonna do your credit score. Okay. All right. And and if what if what if it's over $2,000? What are you gonna advise me to do? Um, then that amount is gonna be added to your liabilities. So let's see if you can carry that amount more to your liabilities. So I still don't try to solve it though, if it's over $2,000. You're not gonna advise me to pay it off. Not till you figure out if you need to pay it. Okay. And then so I'll have homework to do. Yeah. You'll tell me what you're gonna tell me to do. Um, sometimes it's good. How much money do you have in savings? Sometimes it's better to have that money in savings than to start paying stuff. Really? Yeah, because at least you have a backup. You know, they see that you have reserves. You want to have at least, you know, three months worth of reserves so that if you get into trouble, they see that okay, he has money set aside where he can pay his mortgage. So sometimes it's better to have it in savings than to just start paying stuff. So, so you'll you'll make sure I have savings. Uh-huh. Let's assume I have the savings, then what? Okay. Well, then we're going to talk about, you know, you're not buying anything else. You know, are you stable? You know, at this point. So you're going to tell me, Roman, don't go and buy that new car that you wanted if you want a house. Definitely. Okay. And you know, unless you want to live in it, let's make sure you can afford it. You know, at this point, we're going to start seeing what could happen in the future. You know, how we're looking. Okay. And then, of course, you've looked at my my income. I brought you my my pay stubs, you know what I make. There's a few collections on my my credit report. Uh, but say I don't have a lot of debt. Other than that, what's the advice gonna be? Um, don't get any more debt. I mean, to me, no credit is better than bad credit. Really? Okay. Yeah. You know, because even if you have no credit, you can always, you know, uh show that you're paying rent or something to show credit, but bad credit, you know, you just can't do nothing with it, but try to get rid of it, you know. Okay, so uh is there a scenario scenario where I will be ready to buy a house, but I have a big collection on my my credit, what would you do in that case? Um everything else I qualify. I think that collections to me, um if they're not to a dollar amount to where they're gonna have to show them as liabilities, then you know, to me they're not that important. And if you have collections, yes, you need to pay them if you owe them. Okay. But if you're trying to buy a home and just make sure you're in the right position, um, collections, you know, you just make need to make sure are these gonna be something that you need to pay to either bring your credit score up or to make sure it's not added to your liabilities. You don't just pay them because you see them. You got to see what are they gonna do to benefit you if I pay them. And if you have a collection or you've been notified by a collector and you've been talking to the housing trust or you you're thinking about buying a house, can they call the housing trust and just talk to a mortgage counselor or someone about that specific issue? Or would you want them to come in, get a create an actual case file and then start working with a mortgage counselor? I would rather they come in because, like I said, collections, you just really can't know the situation. You don't know the situation and you can't really give advice on collections. You no one should ever just tell somebody, go in and call the collection agency and make payments arrangements. You just shouldn't do that because you don't know what it's gonna do to their credit score. It's all about your credit score, you know. If you're trying to buy a house, you know, your your credit, that's your goal and ticket, you know, is the credit score. Is that credit score? Yeah, and it doesn't do you any good just to pay that sleeping dog just because you want him to run around. Right. You know, you know, well, you want him to wake up and actually get out of your house, right? But like you said, it depends on where you're at in the home buying process. Right. So maybe so sometimes let sleeping dogs lie, is what you're saying. Right. That's exactly it. Some and just, you know, if it's if you need to get your home and that's gonna be worse for you, get into your house, and then if you want to go ahead and take care of that and make sure you're good, then do it. If it's not needed to get into the home, you might want to find something else to target. Like maybe I'm gonna pay off another debt that I need to pay off, but not one that's already in collections that's been sold to an agency that's he just, you know, it's not gonna help you to pay it off. Okay, so if you're interested in buying a house, you have some collect collections or dealing with collection agencies, don't panic. Right. Come and do the housing trust, fill out an application, start going through the process, and our mortgage counselors will guide you through that. Right. Step by step. Yes. Okay, that's exactly what you need to do. Awesome. All right, well, Cynthia, this was great. Thank you for being on the show again. Is there anything I didn't ask you that maybe you want to cover before we we close as it relates to collections and collection agencies? Not really. Um, student loans, I still kind of I'm on student loans for just a brief minute, but uh student loans are always on the credit reports. And so I kind of was wondering if they were to get refinanced, would that be helpful for a person if they were trying to get their debt down to make sure they didn't have collections and things and discovered that if you refinance your student loans, a lot of times that's not the best because you don't have that government protection. So you'd have to find another way to get other debt off of your uh credit reports than your student loans trying to refinance. Okay, so you just introduced one of our next upcoming shows, which is going to be student loans. That's awesome, Cynthia. So thanks again for being on Housing Matters. Um, any last words? Um, nope, just glad to be here. All right, thank you. Well, that that concludes this episode of Housing Matters, the Housing Trust Podcast. Thank you for listening to Housing Matters, the Housing Trust Podcast. If you enjoyed today's episode, please subscribe, share it with a friend, and leave a review. To learn more about our work and the latest at the Housing Trust, visit housingtrustonline.org. If you are interested in partnering with us or supporting our mission, we'd love to hear from you. You can find our contact information on our website.