Best Way To Repair Credit, and Reasonable Expectations

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protechig
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Best Way To Repair Credit, and Reasonable Expectations

Postby protechig » Sun May 03, 2015 1:32 pm

Unfortunately, I have fallen into the trap that most people do and racked up a ton of credit card debt and messed up my credit. Currently, according to CreditKarma my scores are in the low 500s. This is because I have a number of late payments, high debt (probably around 90%), once account that has been closed (following a 60-90 day delinquency), and another that is in collections (but i'm disputing).

Ideally, i'd like to repair my credit within the next 13 months so I can purchase a home - for that I'd need to be at least in the 640s. Is it reasonable to expect a jump in that amount of time?

My total credit card debt is about $7500 (5500 in revolving credit and 2000 in an account that has been closed). I plan on paying off all of my credit card debt in the next 2-3 months - i'm employed so this could happen sooner or later depending on the work that comes in. Once I pay off my credit cards, it'll obviously be tempting to rip them all up - but I know I should use them, at least a little, what is recommended.

Also, what about my cards that have yearly fees, I really don't want to spend a few hundred dollars a year for the "privilege" of using their cards, but I know canceling a card isn't good either because it'll lower my total credit limit.

Thanks in advance for your recommendations,
Zach


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CarefulBuilder14
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Re: Best Way To Repair Credit, and Reasonable Expectations

Postby CarefulBuilder14 » Sun May 03, 2015 6:36 pm

I don't think your expectations are realistic.

1. Even if you paid off all your debt quickly, and had the collections account favorably resolved, you'd still have the history of late payments and high utilization. Those things will take time to fade.

2. Even if you could get 640ish FICOs, with that credit you'd need a big down payment in many residential markets. Where would that money come from?

3. Getting a mortgage and closing on a house takes time. Your credit needs to be in good shape at the start of that process - not simply by the end.

It sounds like you have some high-fee subprime cards. Another problem you face is that with such high utilization, it may be hard to get a balance transfer card or to have your APRs lowered or fees waived.

Pay the debt off as quickly as you can. I'm not sure what's best for you as far as credit cards because you won't qualify for most low-fee options. I think buying a home will have to wait a while.
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Re: Best Way To Repair Credit, and Reasonable Expectations

Postby Vermonster » Sun May 03, 2015 9:41 pm

You should list each card, its balance, its CL, its APR and any fee that is has. Like this:

C1 Platinum 3248/10000 22.99% $49AF


As Careful said, we can help start you on the right path, but it might take more time that 13 months. Make sure to ask about PFD for anything in collections, or is there is a rehab program that will eliminate lates on your report.
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Re: Best Way To Repair Credit, and Reasonable Expectations

Postby takeshi » Mon May 04, 2015 8:34 am

protechig wrote:This is because I have a number of late payments, high debt (probably around 90%), once account that has been closed (following a 60-90 day delinquency), and another that is in collections (but i'm disputing).

Ideally, i'd like to repair my credit within the next 13 months so I can purchase a home - for that I'd need to be at least in the 640s. Is it reasonable to expect a jump in that amount of time?

It's not so much time as it is addressing the derogs and what creditors and collectors will be willing to do as well as reducing your debt. Granted, that will take time but what can be accomplished in X time varies from person to person and situation to situation. It's certainly possible to get where you want to be in 13 months.

Carefully research before taking any action on your derogs as you can make things worse. If you have unpaid derogs then you should aim for PFD's where possible to get them removed entirely. Derogs tend to have a significant impact and hold one's scores down as long as they're on reports. Getting rid of them has to be your priority and going forward you need to have 100% positive payment history (see the link I provide below).

protechig wrote:Once I pay off my credit cards, it'll obviously be tempting to rip them all up - but I know I should use them, at least a little, what is recommended.

You really just need to understand how credit is assessed for scoring and risk assessment purposes versus looking for a recipe or specific instructions on how to use your cards. You can use them all you want (within reason and your budget). However, revolving utilization falls under Amounts Owed below which is the second biggest factor.
http://www.myfico.com/crediteducation/w ... score.aspx
You do not want to exceed 30% revolving utilization. Both individual and overall matter. Lower is generally better as long as you're not letting all zeros report. Ideal for most is well under 10% and the suggestion for optimizing when applying is to only allow one balance to report at 10% or less.

protechig wrote:Also, what about my cards that have yearly fees, I really don't want to spend a few hundred dollars a year for the "privilege" of using their cards, but I know canceling a card isn't good either because it'll lower my total credit limit.

It's again the utilization that really matters. As for AF's don't just consider AF alone. Consider total cost/benefit for your spend (should have been done before applying). Run the numbers to help you determine if the AF's are justified for you. YMMV but my biggest rewards come from cards with AF's and they generate much more in rewards than the AF.

That said, I'm guessing your cards are probably those aimed at subprime consumers as mentioned above. If that's the case then work on gradually replacing them with better cards. With your profile you probably won't be able to add new account all that quickly.

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Re: Best Way To Repair Credit, and Reasonable Expectations

Postby rockyrock » Mon May 04, 2015 9:03 am

I agree this will be tough but you can proly make some good headway in a year. Keep in mind many lenders have their own formula for determining eligibility but all will use your FICO as a starting point. They will likely asses your score by using the average of your two lower scores.

I've been in your situation twice and have recovered nicely both times. In fact, the last of my 30/60/90 are scheduled to drop off sometime this year. That is what has haunted me the most since 2008. I'm currently >$50k in debt but all my FICO scores are >750.

You need to attack this from every angle if you want to maximize your score in this short amount of time.

What I'm recommending is based on my experiences and for your specific situation based off the info you provided.

1. Don't close any accounts if you can afford to pay the AF. Try to PC to another card without an AF in the lineup.
2. Don't apply for any new credit, request a CLI, cable/satellite, mobile phone service, etc.--nothing that includes a HP for the 12 months preceding the day you plan to apply for the mortgage pre-approval.
3. Don't let a balance over 20% report.

4. Do challenge/dispute every negative/derogatory entry on your credit reports--valid or not. This process takes six months or more so start now. This btw is what those so called "credit repair" people do. It's a lot of work so some people just pay to have it done.
5. Do pay off all your debts ASAP.
6. Do try to negotiate with creditors/collections to have negative entries removed as part of your payoff agreement. This isn't likely to work but can't hurt to try.

Do you have anyone willing to "park" like $10k (or more) of their cash in a savings, MM, or CD account in your name? This account will need to be established six months out and remain in there until you close.

Again, all of this is based off my experiences, YMMV. Good luck.
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protechig
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Re: Best Way To Repair Credit, and Reasonable Expectations

Postby protechig » Mon May 04, 2015 11:50 am

I appreciate everyone's responses. I'll try to cover everything in this reply.

I run my own business. I acquired most of this debt when I first started it. Now that i'm making decent money (i'll net around $150,000 this year) I need to start taking my finances more seriously. I was planning on getting an FHA mortgage which requires a minimum of 3.5% down and has much less stringent credit requirements. I know fixing credit takes time, but I was wondering how 12 months of positive credit history would affect my likeliness of getting a mortgage.

My Current Cards:

Capital One - 1483/1500 - $39AF
Capital One Business - 735/750 $0AF
Capital One - 370/500 $39AF
Discover IT - 235/500 $0AF
Credit One Bank - 280/400 $60AF
Amazon StoreCard - 1358/1360 $0AF
Walmart Store Card - 825/860 -$0AF
Boscovv's Store Card - $400 $0AF (haven't used it in years)

The APRs are VERY high on all cards, north of 20% each.

Paypal Smart Connect - ~2,000 (closed after late payments) current on payments now

Closed & Disputing

Verizon - $600 I'm dipsuting, they refuse to do a PFD - I doubt I'll win the dispute even though they are in the wrong.

So the general consensus is that I should keep my credit one bank card even though it is a terrible card with a $60 AF? I can probably get the capital one fees waived as they are incurred.

Thanks so much for your help,
Zach

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CarefulBuilder14
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Re: Best Way To Repair Credit, and Reasonable Expectations

Postby CarefulBuilder14 » Mon May 04, 2015 7:20 pm

What sort of price do you expect to pay for a home? If you can save a big chunk of your income, a big down payment will make it easier for a lender to overlook your bad history.
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Re: Best Way To Repair Credit, and Reasonable Expectations

Postby Vermonster » Mon May 04, 2015 8:49 pm

protechig wrote:Capital One - 1483/1500 - $39AF
Capital One Business - 735/750 $0AF
Capital One - 370/500 $39AF
Discover IT - 235/500 $0AF
Credit One Bank - 280/400 $60AF
Amazon StoreCard - 1358/1360 $0AF
Walmart Store Card - 825/860 -$0AF
Boscovv's Store Card - $400 $0AF (haven't used it in years)


Ok so my opinion is to
A) make minimum payments on all card, always.
B) any extra should be put towards the discover, then Cap one.

With all cards over 20% I don't think there is much savings to be had with paying one down faster than another. Unless there are any close or over 25%. I think if you treat it well the discover will give you a few soft pull clis you can always try recon and tell them you want to run more of your expenses through it. Be nice to cap one so you can ask for AF to be waived. Also see about a soft pull for a cli.

I say pay off credit one soon and SD that card. Don't close it as you badly need your util to look better.
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Re: Best Way To Repair Credit, and Reasonable Expectations

Postby protechig » Tue May 05, 2015 11:48 am

CarefulBuilder14 wrote:What sort of price do you expect to pay for a home? If you can save a big chunk of your income, a big down payment will make it easier for a lender to overlook your bad history.


How big of a percentage are we talking? While i'm not against it, i'm looking to purchase a multifamily unit (for investment reasons) so the least I put down the better. Also FHA loans won't take that into account since there underwriting on strict guidelines set by the government.

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Re: Best Way To Repair Credit, and Reasonable Expectations

Postby protechig » Tue May 05, 2015 11:54 am

Vermonster wrote:[
I think if you treat it well the discover will give you a few soft pull clis you can always try recon and tell them you want to run more of your expenses through it. Be nice to cap one so you can ask for AF to be waived. Also see about a soft pull for a cli.

I say pay off credit one soon and SD that card. Don't close it as you badly need your util to look better.


Thanks for your feedback. I don't actually think discover does soft pull CLIs, i've had discover for almost 3 years and they wouldn't raise my credit limit without a hard pull. Capital one does do soft pulls, they I think it gets reviewed manually, however.

I just got a letter back from capital one, they won't take the late payment off my :(

Thanks,
Zach



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