Can a Bill I Never Received Wreck My Homebuying Chances?

Imagine getting ready to deploy halfway around the world. You want to be absolutely certain that nothing goes financially haywire while you are away, and so you make sure you take care of business before you go. Your cellphone’s not going to work in Iraq, so you put that account on hold.

And now deployment is over, and you’re ready to buy a house stateside. There’s just one little problem: A final cellphone bill you knew nothing about was sent to collections, and now your credit score has tanked.

A serviceman’s mother told us this story:

My son had been deployed to Iraq and had a phone . . . . He let [his cellphone provider] know he did not need his phone until he came home and ask that they put the bill on hold. When he came home 1 year later, they had turned it in to collections. He then paid collections the full $159 he owed . . . . He asked that the collection agency remove this from his credit because he is wanting to buy a house. But the collection agency said they won’t remove it for him or anyone else. So he cannot get the VA to approve his loan amount with this on his credit. So how would we get them to remove this from his credit?

So, could a soldier who tried to preserve his credit end up being denied a mortgage because of a bill for less than $200?

We reached out to Chris Birk, director of education of Veterans United Home Loans, and a Credit.com contributor, for advice on what the servicemember should do.

First, Birk said, the servicemember should take a close look at his credit reports to see what is actually being reported. He (and everyone else) is entitled to a free annual credit report at AnnualCreditReport.com from each of the three major credit reporting agencies. Credit reports can be a little difficult to understand if you are unaccustomed to reading them, but this guide can help make it easier. (He can also monitor his credit scores for free on Credit.com, with updates every 14 days.) Birk also noted that lenders, not the VA, determine the scoring benchmarks they use to decide whether to make loans, so there is not a specific cutoff for making the loans.

“Consumers often expect a collection to just disappear after payment, but it can remain on your reports for some time,” Birk said. “If it’s paid in full, though, the reports should show a $0 balance for that collection. If that isn’t happening, he would need to dispute the issue.” Still, even a paid collection can seriously damage a credit score.

That doesn’t necessarily mean the servicemember is out of luck. Birk said he also may want to contact the military legal assistance office. The Servicemembers Civil Relief Act (SCRA) protects active-duty military members from a host of civil and financial obligations, including issues related to cellphone plans.

Another alternative could be something called “manual underwriting.” This involves an individual looking at the applicant’s situation, as opposed to an automated system, in which credit score is a crucial determining factor.

We also reached out to the cellphone provider, which got in touch with our commenter. The cellphone provider offered to remove all negative credit remarks from the serviceman’s credit report as a “gesture of good faith.” Others who have encountered similar problems may want to contact the Consumer Financial Protection Bureau, which has an Office of Servicemember Affairs.