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Damaged credit, looking for improvements.

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Money Talk > Credit & Loans

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rabidfox
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Damaged credit, looking for improvements.  Reply with quote  

I have an Experian credit score of 575. There, I said it. That's a load off.

3 years 6 months ago, the short sale on my property went though. In that time, I have been accumulating student loan debt while I push myself through college (1 year left!). I have also been working two jobs, so financially I have been doing fine for the last few years.

I have no credit cards. No car payment. Aside from student loans, I live debt free. And, since over three years have passed, I thought perhaps the 'ding' to my credit would have been a bit lessened. Wrong. I pulled my credit today, to see a 575.

I am planning on buying a home, around February or so next year. By that time, I will have about $7000 in cash saved (for down payment, but if I don't need to exhaust my entire savings that would be best). The homes I'm considering are in the $40,000-$70,000 range.

Am I likely to get a loan at that time with my credit looking the way it is? Would getting a secured credit card and making payments on time help my credit much between now and then? What other suggestions do you guys have for me?
Post Fri Sep 21, 2012 6:53 am
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coaster
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This is simple. Your credit score hasn't changed because you haven't used any credit. In my opinion, this is a major fault in the credit rating system. People who practice responsible and prudent financial management get dinged this way. But that's the way it is, sorry, your credit score is based on your credit history and you have no more history since then. So, basically, you have to rebuild your score by responsible use of credit.

If you can get a loan with that score, which is a long shot, your financing costs are going to be outrageous. I'd suggest putting your plans on hold for a while, until you get your score back up over 700.

PS - what's worse is that your Experian score is most likely a Vantage score, not a FICO score. Lenders use the FICO score. The Vantage score has a wider ranger, so your Experian score translates into something like 520 on the FICO scale.

~Tim~
Post Fri Sep 21, 2012 4:59 pm
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rabidfox
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Hey Tim, thanks for the insightful information. It makes sense to me that my credit isn't improving since I'm not using it. I've learned from the first house I purchased: patience is a virtue. Okay, so likely no home buying in my near future.

Ok guys, a few more details and questions:

I spent some time looking over the details of my credit report. I've found some old medical bills and such listed as unpaid, the total on all of these comes to about $2000. I'm going to pay those and hope that has some form of positive impact on my credit score (plus I just flat need to pay them anyway, even if the payment doesn't change my score). Does getting these old accounts listed as paid help much? I notice I have some similar accounts that are showing as paid, but are negative due to my bad history with them.

I'm also going to get a secured credit card. I've looked over a few options, and have two I'm considering. One has an annual fee of $29, and an APR of 19.99%. The second card has a higher annual fee of $44, but has a lower APR at 11.99%. The credit limit is anywhere from $300-$2000, depending on how much money I send the credit card company for a security deposit.

I plan on getting one of those two cards. I've read that once I get a card, I should not use more than 30% of the card's credit limit at a time, and pay it off each month. Does that sound about right? Any idea which of these two cards sounds like the better option? Both report monthly to the big three. How much will obtaining a credit card help? What sort of credit limit should I am for?

Many, many thanks from a man who doesn't understand money, but really wants to.
Post Sat Sep 22, 2012 3:02 am
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Wino
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quote:
Originally posted by rabidfox
(snip) Does getting these old accounts listed as paid help much? I notice I have some similar accounts that are showing as paid, but are negative due to my bad history with them.


It will help, but if the accounts are already listed as write-offs, it won't help a whole lot. The actual formulas used are closely-guarded secrets, though I think there is no real reason for the absolute secrecy the credit bureaus maintain.

quote:
Originally posted by rabidfox
I'm also going to get a secured credit card. I've looked over a few options, and have two I'm considering. One has an annual fee of $29, and an APR of 19.99%. The second card has a higher annual fee of $44, but has a lower APR at 11.99%. The credit limit is anywhere from $300-$2000, depending on how much money I send the credit card company for a security deposit.

I've read that once I get a card, I should not use more than 30% of the card's credit limit at a time, and pay it off each month. Does that sound about right? Any idea which of these two cards sounds like the better option? Both report monthly to the big three. How much will obtaining a credit card help? What sort of credit limit should I am for?


I think you would be better off to open a credit union account, and get a deposit-insured loan for something you actually need. Those fees are outrageous for credit cards, and you should be able to get a shares-secured loan for single digits since you're actually borrowing against your balance.

The 30% rule is what everyone says to CARRY as a BALANCE to get a maximum credit score. Unless you're to the point where you are only trying to get over 800, then this is not much of a point. At less than 600, your goal should be to borrow and pay it back according to schedule (or even early, but not too early; you need a payment history). It will take a few years to get back over 700, though I can't give you an estimate.

I suggest you NOT purchase one of those credit-watch programs, and go to a site such as credit Sesame or credit Karma to track your credit rating. These are free sites. The rating may not be 100% accurate, but you're looking for improvement, not absolute figures. Don't expect monthly improvements until you make solid changes and have a real history to counter-balance your bad history.

Think of it as a bowling or batting average. If you go 25 at bats without a hit, even 5 hits in a row is only a .166 average; for bowlers, rolling a 100 average for 5 weeks only comes up to a 116 average by rolling a 600 series on week 6. There's no such thing as next season or new league in the credit game. Your only surcease is that after 7 years, most bad information is no longer counted, but that 7 years is from "last activity," so paying off old loans will keep them around longer, but as they'll show as paid off, they won't ding as badly as being not paid off, but still bad loans.
Post Sat Sep 22, 2012 4:14 am
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coaster
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My advice may seem strange coming from someone who regularly expounds on financial responsibility, but again it has to do with the twisted nature of debt law: if any of those debts are more than seven years old and there has been no activity on the account for that time they are beyond the statute of limitations and you are not legally obligated to pay them, and in fact any attempt by you to pay them just re-obligates you and restarts the seven-year clock. So before you do anything about past debts, be aware of what you're obligated to do, what you're not obligated by law to do, and be aware of how what you do affects your obligations. More found here:

www.myfico.com

~Tim~
Post Sat Sep 22, 2012 3:17 pm
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Ucloser
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Tim has some great advice, but I'm such a Dave Ramsey follower that I find myself a little bit torn on the issue. Sure, your credit score didn't budge, but how good does it feel to be debt free (aside from student loan debt)? In my opinion, I'd keep saving and paying off my loans. In 10 years, you can buy a house for cash and have no debt at all. It may take you some time, but the long-term payoff is priceless.
Post Sat Sep 22, 2012 10:07 pm
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littleroc02us
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As Coaster stated your credit score went down partially to not borrowing more money and have an outstanding balance of 2k on medical bills. As for making your score better it's interesting because the only way to create a good score is to borrow money and pay it back, you could a million dollar networth and no debt and your score might be 0 and you cannot get a tranditional mortgage from a bank because your not on the grid. Stupid right!
So what I've learned from being a Dave Ramsey, Ray Luchia, the real estate brother and many other successful financial guru's, learning from others in forums, is that you have to come up with what you believe makes a successful and financially smart person and actually think outside of the box. It's kind of like a hardcore Democrat or Republican that follows their party to the tee no matter what and hasn't had an original thought for years. You need to actually sit back and think about different ideas on how they have helped others gain financial success.

With that said I am beginning to form an understanding that right now in my life I have to play the credit score game by keeping one credit card open and paying it off immediately just to keep my score happy so that in the near future I can either refinance or buy without issue. I'm not proud of having a credit score but it's part of the game. So my advice for you is to not buy a home right now, because your racking up student loan debt and a house isn't a blessing for you right now. Pay off those loans first, then save an EF of 6 months and then work on a dp of 20%. YOu will have very low risk at that point and not be house poor. Good luck and take it slow.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Mon Sep 24, 2012 3:57 pm
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rabidfox
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Ok, so for rebuilding credit, would getting two $1000 limit secured credit cards be twice as good as getting one $2000 card (double the amount of cards reporting timely payments, and I get them both at the same time so my average length of account isn't any lower)?

Looking through my old accounts listed as in collections and such, I see a few things listed under Midland Credit Mgmt, Inc - I think they bought my old debt from somewhere, but honestly I have no idea. This end of things is very confusing. If I call the company for details, do I just open myself up to harassing phone calls? I'll be taking my time with this, that's for sure. I feel like I'm in a mine field.
Post Tue Sep 25, 2012 3:57 am
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coaster
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quote:
Originally posted by rabidfox
If I call the company for details, do I just open myself up to harassing phone calls? .

Yes, absolutely. You make the case active again. You are in a mine field. You are wise to be cautious. Learn what your options are, what the law requires of you and what the law requires of your creditors, before you take any actions that might commit you to one course of action or the other.

~Tim~
Post Tue Sep 25, 2012 7:02 am
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ask4carl
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Student Loan Debt  Reply with quote  

I have student loan debt and I am here to testify that prospective employers are a bit more concerned about a potential employee have student loans in default than a few credit cards carrying considerable balances.

I would advise youngsters entering college to manage their student loans wisely and not get too deep in debt -- better to attend an in-state college or university than a more prestigious one out of state that will entail massive student loan debt. America is full of attorneys and physicians on the run from defaulted post-grad student loans.
Post Sat Sep 29, 2012 5:35 am
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AliceSmith
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Bad credit loans can be a very useful tool for people who have a damaged credit history. It is an opportunity to borrow money on a short term basis without being blacklisted for previous actions. Providing you make the agreed repayment amount by the agreed date, your credit rating will slowly improve, paving the way for more accessible borrowing and decreased rates of interest in the future.
Post Mon Oct 01, 2012 10:42 pm
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marco_salinas
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Sad to read your situation. In order for you to improve your credit score. Here are some tips for you to follow:

Pay your bills on time.
Delinquent payments, even if only a few days late, and collections can have a major negative impact on your FICO score.

If you have missed payments, get current and stay current.
The longer you pay your bills on time after being late, the more your FICO score should increase. Older credit problems count for less, so poor credit performance won't haunt you forever. The impact of past credit problems on your FICO score fades as time passes and as recent good payment patterns show up on your credit report. And good FICO scores weigh any credit problems against the positive information that says you're managing your credit well.

Be aware that paying off a collection account will not remove it from your credit report.
It will stay on your report for seven years.
If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.

This won't rebuild your credit score immediately, but if you can begin to manage your credit and pay on time, your score should increase over time. And seeking assistance from a credit counseling service will not hurt your FICO score.

Hope this would be helpful for you, or for your credit repair you can try to visit credit 360 consulting...
Post Mon Oct 08, 2012 6:03 am
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credit_guy
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Get those incorrect, old items off. It may take a few months but your score will bounce back. you may need help navigating all of the legal jargon with the bureaus.

Can you get a loan at all for a home? 7K down on a 40K house is decent. 8K would be preferable. It make you less of a risk and will avoid paying for private mortgage insurance (PMI). PMI is required when you have less than an 80% loan-to-value ration.

There is a house on every block. They come up for sale all of the time. Don't get married to a specific house! You will make really bad decisions, do ANYTHING to get it.

Give your score time to heal and get some help getting those negative things off. In the meantime, keep saving for that downpayment. You're doing GREAT!

Best of luck to you!
Post Tue Oct 23, 2012 4:09 pm
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