Reaffirming Doesn’t Help My Credit Score?
This common fallacy, if not blatant lie was exposed in a recent court hearing involving Wells Fargo. Honorable Margaret M. Mann, US Bankruptcy Judge for the Southern District of California issued an Order to Show Cause (“OSC”) to debtor’s car lender, Wells Fargo Bank, N.A. (“WF”), because it appeared WF may have been pressuring debtor to reaffirm the debt. See: In re Anzaldo, 612 B.R. 205 (Bankr. S.D. Cal. 2020).
Judge Mann’s reasoning for issuing the Order to Show Cause was based on the fact that the debtor’s bar, and other attorneys who appear before the bankruptcy court are misinformed about how their clients’ credit scores are impacted by reaffirmation agreements.
Debtor’s counsel stated on the record that he signed the reaffirmation agreement because he was concerned that debtor’s car would be repossessed by Wells Fargo and also to help debtor rebuild her credit score.
Wells Fargo replied averring it does not repossess a debtor’s car if the payments are current, regardless of whether the debt is reaffirmed. Wells Fargo supplemented its response with a declaration from its Vice President in Operations Risk/Control, Amanda Gilroy, who did not appear to testify; along with a declaration from a consumer credit reporting expert, Dean Binder and a declaration from Joe Ibarra, a bankruptcy manager with Wells Fargo.
Wells Fargo’s credit reporting expert stated: “Even if WF continues to report debtor’s payments to the credit bureaus, this will not necessarily rebuild debtor’s credit score. The reporting of positive payment history on an account that has a discharged in bankruptcy indicator would not be beneficial for a consumer from a scoring perspective. Binder explained that “An account included in bankruptcy is considered a major derogatory by FICO. As such, any positive payment history would not be evaluated by the scoring model.” Binder concluded that the impact of entering into the reaffirmation agreement on a debtor’s credit score is “none if very low.
This Order to Show Cause hearing reveals that Wells Fargo does not repossess accounts that are current; and a reaffirmation agreement has nominal, if zero positive effect on a debtor’s credit score.
