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Best way to dispute medical collection?


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I've been working on cleaning up my credit for about a year now. I'd made great strides, and went from high 500's to low 700's.

I was involved in a car accident last year, and I paid most of my medical bills, but was unable to pay for my MRI as it was not submitted to my health insurance, and it was $3000. Now I know I should have attempted to make payment arrangements, but hindsight is 20/20 I guess. Anyhow, it was reported as a collection, and brought my score down. I have since settled with the at-fault driver's insurance company. The bill was paid in full by the insurance company about two weeks ago.

I'm trying to purchase my first home. When i got my prequalification letter a few weeks ago, my FICO score was a 640. While this is high enough to purchase a home with an FHA loan, I need a 660 to qualify for a Fannie Mae program I'm looking at in which I only need to put 3% down rather than 20%.

Clearly this medical collection dropped my score quite a bit. What is the best way to go about disputing to get it off my report?

I have the check stub from the insurance company showing that the bill has been paid. Is there enough to prove that the insurance company was liable for this bill? Are there any other honest options in getting this removed?

Thanks so much!!

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Your FHA loan should be 3.5% down and the Fannie Mae loan (conventional) is 20% down to avoid MI.

If your lender told you otherwise, go to another lender because the one that told you FHA is 20% down doesn't know what they are talking about.

As to the collection, its a paid collection from what you stated in your first post. That's all that FHA requires for collections (and possibly a written explanation).

The score required by FHA is 580. HOWEVER, most originating lenders require a score higher than 580. 620 is typical. You will have to shop your lender. Go to one that does direct underwriting (DU) and funds their own loans so you don't get caught up with a lender that will take you to the cleaners. Get a good faith estimate.

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Thanks for your response. I prequalified for a straight FHA loan with Chase. They only require 3.5% down, and a 620 score. The only problem is, the house I'm looking at is a bank owned foreclosure. It has chipping exterior paint, and it was built before 1978, so there is a possible lead paint issue. Once it is appraised, it will come back as a problem, and I will be unable to do a straight FHA. As long as the "cost to cure" is less than $5000, I can do a 203b loan, the cost to scrape and repaint will be placed in escrow, and I'll be given 90 days to get the work completed. If it comes back more than $5000, a 203k is required and Chase does not do 203k loans. I work for Chase, so I'd like to finance through them as they will offer $2250 in closing costs for employees.

If I can't do a 203b, I'll be out $400 in the application fee and $400 for the appraisal. I'm not sure I want to take that risk. So the other option I'm looking at is a special program through Fannie Mae on selected bank owned foreclosures. It is a conventional loan, but does not require an appraisal, and waives the need for PMI, even if I don't put 20% down. With a 660 credit score (I have a 640), they will do a conventional with only 3% down. With a 620, they will do a conventional with 20% down. I don't have 20% to put down. So that's my issue. I'm trying to get my score up 20 points in a hurry so that don't have to get an appraisal, I'll only have to put 3% down, and I won't have to have PMI.

I was thinking if I could get that collection removed quickly in hopes that my score will bounce back up to where I need it to be for the Fannie Mae program.

I've checked with one other lender...closing costs are about $2000, plus my down payment, plus my prepaids for a year of homeowners insurance and six months of taxes. That is pretty much all of my savings. Any suggestions on lenders who may be a little easier on closing costs?

Thanks again! :)

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Do you have all the criteria that FHA requires when financing a home? For example, the WDO report has to come back clear too (termite report/wood rot) - so when you describe pealing paint for a house built before 1978 - it is possible your WDO report will not be clear. FHA won't finance the house if there is any wood rot or termites. Bank owned homes are sold AS IS. Sometimes you can negotiate termite and/or wood rot repair with the selling bank - but that's rare. I am mentioning this too you because it is one of the most common reasons FHA loans fail to fund. There are other very common items (working heat/updated electric/plumbing etc). Look at this link for details: HUD FHA HOC Reference Guide Repair Conditions

To get a quick score jump: pay down your utilization to less than 9% of the credit line on any outstanding credit cards you have and zero on the rest. For example, if you have a total of 3 credit cards, let one report with a balance of 1% to 9% of the credit limit and let all the other cards report with a zero balance. This will increase your FICO score - for the score we see. When your lender pulls a report, they will pull the FICO mortgage score. Willingtocope has more detailed knowledge of the different types of scores and their componets but I have noticed that the mortgage score likes zero balances on your other outstanding debt (credit cards). This should get you the points you need.

Did you pay the medical provider directly? See if they can call back that collection since it is now paid. That may work too, but the utilization reduction as above is your quickest route.

Edited by Denita
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