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‘Credit washing’ scams harm lenders and honest borrowers | PaymentsSource

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In the debate about credit reporting accuracy, there’s a common assertion given as fact: No one can erase bad credit information from their credit report if that information is accurate. Unfortunately, this is a myth. Removing negative information from your credit report is entirely possible and is, in fact, a booming business. It’s a scam that disadvantages identity theft victims and harms the ability of lenders to accurately underwrite loans, and it’s time for policymakers to act.

This scam is called “credit washing.” First, a credit repair company will lure a consumer who has a bad debt on their credit report with promises of overnight credit score improvements. Then, the company will contact the consumer’s financial institution or the nationwide credit bureaus to falsely assert that that bad debt is the result of identity theft or other fraud.

Under the federal Fair Credit Reporting Act, in many cases, such an assertion will require the creditor stop reporting the bad debt to the credit bureaus, effectively causing the negative trade line to disappear from the person’s credit report. To be clear, in these cases there is nothing inaccurate about the information the credit washing company is disputing: This is simply a case of an industry exploiting loopholes in federal law.

With the delinquent debt “washed” off the person’s credit report and the ensuing boost to their credit score, it becomes possible to obtain more — and better — credit from a different lender. Of course, the original debt itself doesn’t just go away. It often becomes a loss for the financial institution. Moreover, credit washing undermines the credit scoring system, which is the backbone of all lending in the United States, and ultimately increases the cost of credit for all borrowers.

The rules regulating credit repair, as well as changes made by the Federal Trade Commission within the last few years related to how consumers report identity theft, have allowed this scam to skyrocket. Banks I work with report a 50% spike in claims of fraud and identity theft since the FTC — intending to help victims — changed the process in 2017 to allow identity theft reports without evidence. Some banks now receive 1,000 to 2,000 disputes each month. Of those disputes, it is estimated that over 95% are bogus attempts at credit washing.

To protect the actual victims of identity theft that are being buried by the spamming of fake disputes by credit washers, and to ensure that lenders aren’t making unsound loans based on inaccurate credit report data, policymakers need to take action. In 2019, the Consumer Financial Protection Bureau filed suit against the largest credit washing companies for violations of telemarketing rules and deceptive advertising. While presumably justified, this arrow misses the mark: The real issues stem from the lack of any accountability for credit washers in the process they currently exploit.

For example, federal regulations do not require or allow for sufficient checks or validation by a lender that a claim of fraud or identity theft is valid. In addition, there’s no way for a lender to know that a person applying for a prime-rate auto loan just “washed” their credit of a 90-day delinquent credit card at a different lender. And then there’s the thriving marketplaces that allow people to “sell” good trade lines to people with bad credit in order to help them artificially boost their credit score. In all, there is not nearly enough regulatory enforcement against, and very little oversight of, the credit washing and repair industry.

There are better and more honest ways of repairing bad credit, or building credit for those with little or none, that policymakers should look to amplify. All of this points to an urgent need for Congress, the FTC and CFPB to start paying attention. If a recent congressional hearing is any indication, it is too easy for policymakers and consumer advocates to lob barbs at credit bureaus while turning a blind eye to the real harm being done by credit washers. Choking off vital resources for real victims of fraud and identity theft, while also undermining the underwriting and risk standards used by banks to make safe and sound loans, is a practice that should not be tolerated.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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