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Author: becketsmom Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308782  
Subject: How long does it take to build up/repair credit Date: 7/13/2005 2:38 PM
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Hello... I used to have abysmal credit. Somewhere in the 500's?

Anyway, I don't have any credit cards or anything like that now. There are charge-offs and some paid-offs as recently as two years ago.

What will happen to my credit score as the bad stuff scrolls down the years, but no new (good) credit appears at the top?

(Incidently, I did buy a used car via financing, but I paid it off early over a year ago, and nothing about it ever appeared on my credit reports, either good or bad.)

I would like to be in a position to think about buying a house in five years or so... what should I do?

As a test, I went ahead and applied for a card at Sears a few months ago, and was denied - as I expected I would be. I do occassionally get pre-approved offers in the mail, but they are all for cards with really high annual membership fees and, I'm sure, terrible interest rate (not that those should matter if I pay it of in full.)

I am a bit afraid of credit cards, but I know that I need to put on my big girl pants and start using credit responsibly. And, I suppose it would be good to have a CC if there were a true emergency and I really didn't know how else to feed my child (although I really do have plenty of options in my social/faith/family network).

It has crossed my mind to get a secured Visa and use it only for purchasing gasoline. Then, I could pay it off every month as my "gas bill." I also like the idea of being able to control how much my credit limit is, and I like the fact that I'm putting money away in savings while I do it (although at an abysmal rate.)


What do you all advise I do?
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Author: gettingoutofdebt Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208177 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/13/2005 2:50 PM
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Hi~
I am not one to advise you as I am just repairing my own. Back when I was 18 I moved to Colorado and screwed my credit up with collections (medical) and other things. I went from no credit to about 500 or so.

I waited about 5 years and applied for a car loan. I did require a co-signer and I made sure that I was not late. I paid on time and also had DF put me on some of his cc so I get the credit for on-time payments. I accepted an offer for one of those horrible high interest rate cards, but I kept it a minimum and paid it off (the limit is only 250).

I recently checked and my credit is now mid 600s. I also qualified for a mortgage last year, at a decent rate. It definitely takes time, but like you said, it's time to put the big girl pants on. To earn credit you may have to accept those high interest cards, but pay them off every month and only charge what you can afford to pay back. That way, you will get positive marks on your report.

The best of luck to you.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208179 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/13/2005 4:12 PM
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You need to establish credit. Realistically, if you can not handle a credit card how do you expect to handle the responsibilities of home ownership? If you belong to a credit union, check if they issue a secured credit card.

And, I suppose it would be good to have a CC if there were a true emergency
Your goal should be to have an emergency fund. A credit card is convenient for processing payments. When used for your benefit as opposed to the credit card companies benefit, it is a useful financial tool. The old saying if all you have is a hammer, everything looks like a nail applies. A common problem is that if a credit card is viewed as an emergency fund, then a cycle of debt can start when irregular but predictable expenses start to be considered emergencies.

The paid-off accounts should not cause you a problem in five years. By that time, any bad information will be old enough not to cause serious problems with your FICO score.

The charge-offs will require attention forever. They are routinely resold. Collection agencies routinely try to illegally redate the debt. Any statement that you accept responsibility for the debt will result in the debt being redated. Two years is still within the statue of limitations of most states. Once past the statue of limitations, collection agencies can not legally threaten to sue but they can still ask for payment. If they succeed in obtaining any payment or promise of payment then the entire amount is redated. Some credit cards have slipped a statement into their credit applications that by accepting a new account you accept liability for all past charge-offs. The charge-offs then appear immediately as a new entry on the account.

How much was charged off?

Debra

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Author: becketsmom Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208181 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/13/2005 4:28 PM
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Sigh. I thank you for your reply. I just wish it were a little less patronizing.

I already have an efund. And a freedom fund. And investments, outside of my 401k/IRA.

I don't want to use my CC as emergency funds, but I was just saying that, if it were truly life or death and my efund had been depleted and my social/faith/community network were unable to help any more, a CC would maybe feed my kid. I don't forsee that happening.

I'm a single mom who raises her child all by herself and who manages to save 45% of every pay check. I would hope that I could handle the responsibility of home ownership at some point in my life.

OK, about the charge-offs. I have heard that about them - that they can be sold. I have seen that happen. The charge-offs were for less than $3,000, I think there are two of them, and they were three to five years ago. They were done long before I ever checked my credit report (over a year ago, I'm going to do it again in the next month) and long before I ever decided to get financially responsible. At the time I got responsible, I paid down a $2,000 debt that I didn't even know about (a class I thought I'd properly dropped in college years ago, and it took them a long time to find me.) And, I paid off my car about two years ahead of time. (Then, I sold the car and I now drive a car I inherited.)

I've heard two opinions on these sorts of charge-offs. One, to do the right thing and go and pay them, even if it hurts my credit score. Two, to just ignore them and then, when they're over 7 years old, see to it that they're removed from my credit report.

At any rate, I think my main question is: would getting a secured credit card through my credit union be sufficient to rebuild my credit to good levels? I mean, do they like to see us juggle a couple of thousand dollars on two cards, or is one card with a $300 limit enough to get me started?

There are other factors that have to be worked on before I can buy a house, such as my employment history. I have to get a steady job and hold it for a few years, first, I think. (I'm working full time, but I'm a contracter with Adecco.)

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Author: foolazis Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208182 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/13/2005 4:38 PM
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I'm a single mom who raises her child all by herself and who manages to save 45% of every pay check.

Kudos to you. I'm impressed that you can save so much. Good job!

BTW, a secured card could be a good way to start establishing a positive credit history.

foolazis

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Author: Booa Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208185 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/13/2005 4:49 PM
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Welcome to the CC board, becketsmom. I think getting a secured credit card through your credit union would be plenty to start rebuilding your credit to good levels. I think if you have an account there, they may be pretty good about not hosing you with super high yearly fees or other kinds of fees.

As for juggling a balance on your CC, you don't have to do that in order to get a good credit report. If you pay your CC after the statement closing date, but before the due date, then your CC will report your balance on your credit report, and as long as you have a nice history of paying on time, your credit should be on its way to healed in no time.

But you don't have to carry a balance, or have a huge balance to raise your score. Regular payments, that's the key. And another thing that I recall showing up on a credit report is if you have that overdraft protection on your account that acts like a credit card. So if you could open a CC with your credit union, I don't know if it would show up differently than the overdraft protection, but if you get both, it shows up as two lines of credit, anyway, revolving. Just a thought. :-) If you start with one CC, and your credit score starts to go up, you'll have more offers than you know what to do with before long. Patience is pretty key, too. (That's where I really feel the lack--I'm not a very patient person.)

Good luck!


--Booa

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Author: dswing Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208188 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/13/2005 5:25 PM
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becketsmom:

A couple of more specific points for you:

1) Cleaning up your report, paying off delinquent items, disputing any errors, etc. is the first step. Once your credit report is as clean as can be, you've completed phase one.

2) Get no more than two revolving debt accounts, and make sure they are used at least once every six months to keep their reporting current. Keep your payments on time, always always always. This goes for every bill, not just credit cards.

3) Remain in phase 2 for 5 years. You will have much better credit, and will easily qualify for a mortgage. In truth, within a couple of years you should see big improvement.

4) Next is phase 3. Maintain your good-standing credit accounts for 5-10 years, and beyond. This will get you into the realm of 800 credit, and by then you probably won't need it unless you want to refi the house.


~dswing

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208199 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/13/2005 7:01 PM
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Sigh. I thank you for your reply. I just wish it were a little less patronizing.

I already have an efund. And a freedom fund. And investments, outside of my 401k/IRA.

I'm a single mom who raises her child all by herself and who manages to save 45% of every pay check. I would hope that I could handle the responsibility of home ownership at some point in my life.


You are in much better shape than your original post indicated. I completely misunderstood your current status. I am sorry for the tone of my reply.

One way to raise your credit score to allow you to obtain a credit card in your own name is to have a relative share their credit history. Even though you never use the account (and it must be that you never touch the account), many credit card companies report the entire credit history of an account for all owners and authorized users. Instantly giving the authorized used a credit account with a clean history. Once you establish credit in your own name, you are removed from the account.

It is unfortunate that the car loan was not reported.

The FICO score depends on length of credit and current ratios of used/available credit. A low credit limit would indirectly result in a lower FICO, but the good side of this is that it is based on the last reported values.

Debra


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Author: rozina Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208203 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/13/2005 7:40 PM
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I know subprime lenders take a lot of lumps here, but that is one way to establish a positive credit history. To me, a secured card is no different than my bank debit card. How is spending my own money establishing a credit history?

When I had to rebuild my credit after Chapter 7, I opted for an unsecured credit card from a subprime lender (Orchard Bank). I think I was about a year or so past the bankruptcy discharge when I was approved. It was high interest, low limit, and had an annual fee. But they reported to the CRA's every month, so that put positive information in my file.

They kept their end of the agreement, and I kept mine. I always paid more than the minimum due and was never late with a payment. About a year later I got a second subprime card (Providian) with slightly better terms. I got regular credit limit increases on both cards and a positive report to the CRA's every month.

About the fourth or fifth year I got a approved for a "normal" unsecured credit card [one that was not part of the subprime market]. As I moved back into the regular credit market I closed the subprime cards with their high interest and annual fees.

I am about 7 years past the bankruptcy. My credit union told me today my FICO score is 740. All I did was pay my bills on time.


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Author: becketsmom Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208204 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/13/2005 7:47 PM
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To me, a secured card is no different than my bank debit card. How is spending my own money establishing a credit history?


As far as your credit rating goes, it's no different than a regular credit card. If you pay late, your credit gets dinged. If you never pay, they'll just subtract your deposit from the amount they reflect as charged off on the report.

After a year or so, you can have the money back and they'll usually raise your limit.

Meanwhile, I think the rates and fees tend to be better than you'd otherwise get.

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Author: lanshark Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208225 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/14/2005 1:08 AM
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It has crossed my mind to get a secured Visa and use it only for purchasing gasoline. Then, I could pay it off every month as my "gas bill." I also like the idea of being able to control how much my credit limit is, and I like the fact that I'm putting money away in savings while I do it (although at an abysmal rate.)

Many banks run secured credit card programs. I went for the cheap $20 annual fee type of program, that paid interest on my deposit, and funded it with a full $5k.

Then, with card in hand, just use it as you would cash. If you like to stick to gas, that's fine... I ended up using mine for everything, but ALWAYS paid the bill in full.

The charge offs will remain for seven years, but I was able to get a Sears card of my own after using a secured Visa for a couple of years.

- Lan

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Author: lanshark Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208226 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/14/2005 1:12 AM
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At any rate, I think my main question is: would getting a secured credit card through my credit union be sufficient to rebuild my credit to good levels? I mean, do they like to see us juggle a couple of thousand dollars on two cards, or is one card with a $300 limit enough to get me started?

I would go on the basis that having 2 cards is better than just 1, provided you can do it at a reasonable cost per year.

If you start with a lower limit, check to see that you can increase the credit limit by adding additional money over time. Capital One (formerly Signet) used to offer this, but I left their secured program in 1997. You mention your credit union - that is an excellent place to start.

- Lan

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Author: eudaimon6 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208239 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/14/2005 7:18 AM
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A secured credit card will allow you to build a positive tradeline without paying huge fees or exorbitant interest rates. Secured credit cards are an excellent tool for rebuilding/establishing credit.

WWW.bankrate.com will give you links to many banks that offer secured cards.

Time heals credit more than anything. I made some poor decisions after my divorce in 1996. I imagine my score was in the very low 500 range in 1997. Two months ago it was above 750. I started with a secured card, then took out a small loan secured by a CD so I could build a positive record on an installment loan, and gradually moved up from there. Now I have a mortgage and two credit cards with excellent terms. It just takes time, patience, and responsibility, all of which are well within your means.


Good luck. I like the plan outlined in your first post. I hope you are successful with it.

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Author: Abfacken Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208323 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/14/2005 7:07 PM
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> I've heard two opinions on these sorts of charge-offs. One, to do the right thing and go and pay them, even if it hurts my credit score. Two, to just ignore them and then, when they're over 7 years old, see to it that they're removed from my credit report.

If you go the payoff route, be sure to negotiate a complete removal of the record as part of the terms of payment. Do this in writing before you write a check.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208353 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/15/2005 10:17 AM
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If you go the payoff route, be sure to negotiate a complete removal of the record as part of the terms of payment. Do this in writing before you write a check.

The problem is that any contact will probably result in the CA redating the debt. If they refuse to negotiate a removal, it leaves her back where she started. Where she would like to buy in a couple of years, the decision is difficult. Since the charge-off amounts are not large, it might be worth dealing with them now and placing the past clearing in the past.

Debra

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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208355 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/15/2005 11:51 AM
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The problem is that any contact will probably result in the CA redating the debt.

It shouldn't, and if they do, they are breaking the law.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208387 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/15/2005 8:49 PM
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It shouldn't, and if they do, they are breaking the law.

Any admission of liability legally redates the debt. It would require a very careful interaction to offer payment only if they removed it from your credit report.

Debra

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Author: becketsmom Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 208410 of 308782
Subject: Re: How long does it take to build up/repair cre Date: 7/16/2005 10:25 AM
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Any admission of liability legally redates the debt. It would require a very careful interaction to offer payment only if they removed it from your credit report.

And, THAT'S the reason why I haven't contacted them. I haven't decided what I want to do, and I don't want to stir them up, again. They'll be dropped off my credit report by the time it matters if I do nothing.

Now that I think about it, I'm not sure there *are* two charge-offs. I think there is only one. The other was one that I settled a smaller amount to pay off.

There is something else out there, too. And, I'm afraid to talk to them. Some CA has been trying to reach me to pay more than $2,000 on what was a PG&E bill. Um, I left California in 1999. And, I absolutely KNOW that I did not walk away from a $2,000 utility bill. Seriously. It's remotely possible I forgot somehow to pay what may have been a small bill - like a few days of usage for the billing cycle I left in or something, and when I closed the account, it wasn't really closed. I mean, it's possible. But, there's NO WAY I walked away from a bill of even $100. Even a bill that large... could it have grown to $2,000 in six years? I think it is more likely that somebody neglected to actually turn off the power/switch the name as they should and the next person in that apartment didn't pay the bill (and why would they?)

At any rate, I am afraid to try to get to the bottom of this because I *KNOW* I don't owe no $2,000 and I'm afraid of just making more trouble. As it is, they don't know where I am living. If they DO find me, I'll tell them that I don't owe any such thing and, then, when it's been seven years from the day I left CA, I will see to it that it's removed from my credit report.

Is this immoral of me? I feel kinda bad about it, but at the same time, I know I don't owe that money!

The college course I thought I'd properly dropped but hadn't... I did pay that down (and it took them four years to find me, so the amount had doubled!) I paid it because, well, I knew I owed it. I thought about trying to fight it, but you can't fight a collections agency and I am no longer in CA so what can I do? It was my responsibility to double-check and make sure the class had been properly dropped in time (I think I dropped a day late - it didn't show up on my transcript, but I still owed the money. I literally had no idea about that for over four years.)

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