Fixing my credit; some questions...

[naaman]

UPDATE!!! Since the original posting, my FICO score has gone up 41 points.

Okay...

So I'm home on leave and feel secure enough to look up my credit report online.

I found out my score for the first time in my life. It is currnetly above 550, and below 600. This is, from what I understand, abysmal, but it is in recovery from a God-only-knows-how-much-lower score.

There are no bankruptcies and no judgements on my record.

I do have some accounts that have gone into collections, and a some of my credit cards are at/near the limit. This, from what I understand is the primary influence in my low score.

As of now, all of my accounts are current, and have been so for over a year.

My primary goal is to boost my credit score over 700 (and eventually over 800). My secondary goal is to have no/low/manageable/comfortable debt. I have some cash saved up which I can use to zero out a few of my low limit credit cards all at once. I can also pay down some of my higher balance/limt credit cards as well.

From what I have researched, it's best to have revolving debt at less than 50% of the maximum limit, though maintaining some debt is good, because it can be used to analyze financial behavior.

Now, would it be best to zero three or four credit cards which have low limits, or just pay them down to about 20% or so? And for the higher ones, I can't afford to pay them all the way down, but some is better than none, I gather. For example, if I had one credit card sitting at 85% of the limit, I'd want to pay it down as much as I could, even if it was only down to, say, 75%, as that would improve my score. Correct?

Bottom line questions:
What's best to improve my credit score in the short term?
What's best for long term?
What's best "freeing" up money now and in the future?
How good of a score is 650? I have received some advice from the online "Credit Wizard" that tells me some actions that can boost my score to approximately this amount (presumably in 1 month, but that much is not 100% clear).

Also, I've wondered: if I have a few thousand dollars, is there some way to spend/invest it so that it will grow by... say... 25%-50% in 6 months? 12 months? And if so, how much of an investment of time/stress would be involved?

I am going to need to buy a car soon and will need to take out a loan to do so (about $25,000). I currently have control over my debt, but my score is still recovering from just being broke when I was younger.

Am I likely to be able to get the loan in... say... four or five months? I would prefer not to get the loan from one of those agancies that specializes in "bad credit" loans, as I understand that this has a negative impact on my credit score.

Any advice is much appreciated.

 

[Dtrigg]

Pay down your credit cards.

For a return like that, in that timeframe, is not really an investment, it's more of a gamble. Your return on an investment is offset by the risk you're willing to take.

Another thing if you haven't already done so, opt out of receiving credit card, or any other type of mailings. Every time you receive one of those, they have pulled your credit report. That makes your score go down as well.

 

[SilverStone05]

Okay...

There are no bankruptcies and no judgements on my record.

I do have some accounts that have gone into collections, and a some of my credit cards are at/near the limit. This, from what I understand is the primary influence in my low score.

As of now, all of my accounts are current, and have been so for over a year.

My primary goal is to boost my credit score over 700 (and eventually over 800). My secondary goal is to have no/low/manageable/comfortable debt. I have some cash saved up which I can use to zero out a few of my low limit credit cards all at once. I can also pay down some of my higher balance/limt credit cards as well.

From what I have researched, it's best to have revolving debt at less than 50% of the maximum limit, though maintaining some debt is good, because it can be used to analyze financial behavior.

Now, would it be best to zero three or four credit cards which have low limits, or just pay them down to about 20% or so? And for the higher ones, I can't afford to pay them all the way down, but some is better than none, I gather. For example, if I had one credit card sitting at 85% of the limit, I'd want to pay it down as much as I could, even if it was only down to, say, 75%, as that would improve my score. Correct?

Bottom line questions:
What's best to improve my credit score in the short term?
What's best for long term?
What's best "freeing" up money now and in the future?
How good of a score is 650? I have received some advice from the online "Credit Wizard" that tells me some actions that can boost my score to approximately this amount (presumably in 1 month, but that much is not 100% clear).

Also, I've wondered: if I have a few thousand dollars, is there some way to spend/invest it so that it will grow by... say... 25%-50% in 6 months? 12 months?

Any advice is much appreciated.

Best to improve credit score in near term is to pay down the credit card balances as much as possible. Start with the ones closest to being maxxed out. (this advice is given irrelevant to the interest rates)

Best for long term is the same. Pay down the credit cards as much as possible.

Best for freeing up money now is to pay as much as you can toward the cards with the highest interest rate.

Your score is not going to be in the 700's for quite some time...or at least until you have the cards paid off and the collections slip off your report. Collections, no matter how small KILL you.

Whoever told you utilizing debt makes you look better is wrong. HAVING credit and NOT USING IT or using it as little as possible is the best case scenario.
Showing a zero balance on a credit card will give you a better score than a credit card with 5 grand on it.

As far as those short term returns. They are, in fact, quite unreasonable.

Best of luck.

 

[naaman]

Well,

Through further research, I've learned that some of the information on my credit report is old. For example, one of my currently current accounts still shows as delinquent, even though that delinquency is from FIVE years ago!!!

Can I get my lenders to update their reporting? If I call and ask what's up, can they just report my current credit, or is it more detailed than that?

Also, does the 7 years thing apply to all bad/negative credit items, or just certain ones? For example, if someone were to have a credit score of 350, and then, for 7 years never miss a payment, whould their credit score be "perfect" (I realize income/debt/assests and number of accts and such affects actual score, so "perfect" may not be 850)?

 

[naaman]

Pay down your credit cards.

For a return like that, in that timeframe, is not really an investment, it's more of a gamble. Your return on an investment is offset by the risk you're willing to take.

Do you mean it's proportional to the risk? As in less risk, less return?

 

[Dtrigg]

Do you have a credit report from all three reporting agencies?

Anything that's not correct on each of the reports should be reported to the reporting agencies. Each one will contact the organization to verify the information and then will correct your report. Make sure you review all three reports.

 

[docjohn]

Knowing your score is a start but now you need to delve into the reports to see what delinquincies are there.You need to check the validity of any purchased items/services that went to collections and get that straightened out parallel with your paying down your highest % rate balances.I think you really need to look hard at your income side to see where you can increase your compensation,overtime second third jobs to pay off your dept.Too often people look only at thier dept and never try to increase thier income.Your fico score will not jump up over night.sounds like you could be in for at least a 2 yr uphill trudge.

 

[nsxlover]

Any account that shows in collections, I would dispute the validity of the debt to the 3 major credit reporting agencies because a lot of the smaller collection agencies do not have the room to keep on hand all the paperwork that goes along with the account. If they can not provide proof to the credit agencies, then it will be removed.

Do a google search and you will find a credit analyzer tool that you can plug in your info and do scenarios of paying different cards down or off and it will show you what your score should be afterwards.

Rob

 

[evof575gtc]

Washington Mutual Credit Cards ( www.wamucards.com) lets you check your credit report whenever you want online.
it also gives you scenarios how to improve your credit score ratings, or how it can be affected if you miss payment etc...
works great.

 

[tosugrad]

Well,

Also, does the 7 years thing apply to all bad/negative credit items, or just certain ones? For example, if someone were to have a credit score of 350, and then, for 7 years never miss a payment, whould their credit score be "perfect" (I realize income/debt/assests and number of accts and such affects actual score, so "perfect" may not be 850)?

Yes! My understanding is its a rolling 7 years. So something will drop off at the 7 year point. Thats 7 years from the last report.

 

[robr]

There is an ENTIRE FORUM dedicated to this very subject with literally hundreds of thousands of posts, FAQs and form letters. I've been pretty successful at getting a lot of negative stuff removed from my reports from two of the three major CRAs (credit reporting agencies) using the letters and techniques others have posted. I *do* have a bankruptcy on my CR from 2005 and all my FICOs (the real deal, not the FAKOs) are all right around 700 even. In fact I just qualified for Honda's premier tier when I leased my wife's new Pilot.

See here and don't forget to come up for air:
http://www.creditboards.com/forums/

 

[Red]

These guys are telling you good stuff - I just have a few pointers (I ran a lending operation)

1) Zero Balances are best - there is something called TDSR "Total Debt Service Ratio" - although largely ignored in the recent past (hello ABCP!!!) I predict it will strongly govern new loans - the premise is you can only use so much of your available income to service debt - like 31% of pre-tax income for housing, for example (compared to 100%)

2) If you are looking for safe returns in the 20% range my best advice is pay off your (and in some cases cancel) credit cards! Those puppies are running 18-25% interest COST to you, your best investment is to NOT pay the interest cost - you'd have to earn the interest rate plus your tax rate (since you pay the interest in after tax dollars, ie. tax rate 30% you're paying 24% on the car using 70 cent dollars) - You'll never have a better low risk investment in your life! AND you can't lose the money!!!! (but cancel the card afterwards, you don't sound like a guy who's super on-top of finances)

3) Don't borrow money to buy a $25k car!!!!! What are you doing pumping us your debt load??? I know you want a certain lifestyle, but, as you noted above, your past lifestyle has set you back now, your current lifestyle is gonna set you back in the near future!!! Buy an old classic like a nice Japanese, low maintenance sportscar, old Honda Prelude, etc. for $3-5,000 and drive it for a few years, use the money you save to clean off all your debt.

A car is a luxury and for many people the single most expensive thing they own (next to a wife:wink. Don't let your desire for immediate gratification result in years of stress and being never able to "settle down" due to debt.

My net worth exceeds the national average by light years, I own an NSX and a Porsche racecar and I've been driving a 2000 Audi A8 for the past few months (winter) - I'm not worried about what it says about me, its fun to drive, goes good, and cost nothing - if I can do it I'm sure you can too!:smile:

PS - great reading for you: The Millionaire Next Door - be like them!

 

[NSXGMS]

Yes! My understanding is its a rolling 7 years. So something will drop off at the 7 year point. Thats 7 years from the last report.

Collections and charge-offs don't always automatically disappear. I've seen ones as old as 12 years on credit reports.

Each state's staute of limitations is different so be aware of them. When it's reached sometimes it's necessary to contact the credit bereaus and point out the fact that the limit has run out, to which they should remove them. Whatever state the collection was originated from applies.

Then again a 12-year-old collection probably isn't impacting your credit score very much anyway.

 

[Dtrigg]

Another thing you might want to consider when paying down your credit card bills is making a number of payments per month. Many credit card companies predicate your interest on the balance at the end of the 30 day business cycle. If you reduce that amount during the month you'll save a lot of money. On the other side, most credit card companies, because there's not stupid, will limit you number of monthly payments to three or so.

This will have a HUGE impact on your paying down your accounts. It's like a 15 year mortgage versus a 30 year mortgage. Doesn't cost that much more per month.

 

[naaman]

Okay, so I looked up my REAL credit score (my FICO score). Between the three reporting agencies, my credit score averages about 620.

As for actually increasing my credit score, it looks like all I have to do is keep up my with my current system and over the next 24ish months I will be in the mid 700s. So it's basically a matter of time it seems.

These guys are telling you good stuff - I just have a few pointers (I ran a lending operation)

1) Zero Balances are best - there is something called TDSR "Total Debt Service Ratio" - although largely ignored in the recent past (hello ABCP!!!) I predict it will strongly govern new loans - the premise is you can only use so much of your available income to service debt - like 31% of pre-tax income for housing, for example (compared to 100%)

Well, my credit report was saying that I was using an average of 76% of my maximum credit. I just payed all that down to an average of 26%.

2) If you are looking for safe returns in the 20% range my best advice is pay off your (and in some cases cancel) credit cards! Those puppies are running 18-25% interest COST to you, your best investment is to NOT pay the interest cost - you'd have to earn the interest rate plus your tax rate (since you pay the interest in after tax dollars, ie. tax rate 30% you're paying 24% on the car using 70 cent dollars) - You'll never have a better low risk investment in your life! AND you can't lose the money!!!! (but cancel the card afterwards, you don't sound like a guy who's super on-top of finances)

No. I am "super on-top" of my finances. I wasn't before simply because I was broke (and having taken some bad financial advice as a young 18/19-year old college student).

3) Don't borrow money to buy a $25k car!!!!! What are you doing pumping us your debt load??? I know you want a certain lifestyle, but, as you noted above, your past lifestyle has set you back now, your current lifestyle is gonna set you back in the near future!!! Buy an old classic like a nice Japanese, low maintenance sportscar, old Honda Prelude, etc. for $3-5,000 and drive it for a few years, use the money you save to clean off all your debt.

I don't underdtand: "pumping US your debt load." Who is "us"? And how would me taking out a loan burden someone else, especially if I have ample means to repay the loan (ahead of schedule, even)?

A car is a luxury and for many people the single most expensive thing they own (next to a wife:wink. Don't let your desire for immediate gratification result in years of stress and being never able to "settle down" due to debt.

Perhaps I misrepresented my situation. I understand you're giving advice (which I appreciate), though I think a clearer picture of where I'm at may help to produce better advice from the likes of you who know what you're talking about.

I have assumed full control over my entire financial life. I have no "financial stress" so-to-speak, and everything is stable. What I'm trying to do is simply "fine tune" my financial behavior so that my credit score will improve as quickly as possible.

My net worth exceeds the national average by light years, I own an NSX and a Porsche racecar and I've been driving a 2000 Audi A8 for the past few months (winter) - I'm not worried about what it says about me, its fun to drive, goes good, and cost nothing - if I can do it I'm sure you can too!:smile:

PS - great reading for you: The Millionaire Next Door - be like them!

I appreciate the reference. Will probably be good reading once I get back to "work."

 

[Dtrigg]

Glad to hear you're on your way to recovery, and thank you for your service. It's much appreciated.

 

[Daedalus]

I don't underdtand: "pumping US your debt load." Who is "us"? And how would me taking out a loan burden someone else, especially if I have ample means to repay the loan (ahead of schedule, even)?

Surely it was a typo. Try "pumping up your debt load."

 

[Red]

Okay, so I looked up my REAL credit score (my FICO score). Between the three reporting agencies, my credit score averages about 620.

Lenders tend to pull one "bureau" - so an average won't help you, it will be about the company the lender chooses to get your info from - thats why you should be on top of issues (if any) reported by any single bureau.

As for actually increasing my credit score, it looks like all I have to do is keep up my with my current system and over the next 24ish months I will be in the mid 700s. So it's basically a matter of time it seems.

Its not just about FICO, its also about payment history, Collections, Judgements and Write Offs. Your score may go up, but you may have collections or write offs that will damage your ability to borrow.

Well, my credit report was saying that I was using an average of 76% of my maximum credit. I just payed all that down to an average of 26%.

Its not the amount of the debt you have per say, (most americans and many canadians have WAY too much total debt granted to them), but instead its about your debt payments divided by your income - they don't look at your current utilization but instead choose a percentage that they think a typical person could hit - therefore canceling cards and reducing limits makes it easier for the next lender to consider you a reasonable risk.

No. I am "super on-top" of my finances. I wasn't before simply because I was broke (and having taken some bad financial advice as a young 18/19-year old college student).

GREAT!:smile:

I don't underdtand: "pumping US your debt load." Who is "us"? And how would me taking out a loan burden someone else, especially if I have ample means to repay the loan (ahead of schedule, even)?

Typo - should have said "UP"

Perhaps I misrepresented my situation. I understand you're giving advice (which I appreciate), though I think a clearer picture of where I'm at may help to produce better advice from the likes of you who know what you're talking about.

Happy to help - I can only make general assumptions from info provided, and, of course, its hard to get "flavor" online:smile:

I have assumed full control over my entire financial life. I have no "financial stress" so-to-speak, and everything is stable. What I'm trying to do is simply "fine tune" my financial behavior so that my credit score will improve as quickly as possible.

Not saying you have specific "financial stress" but when you're short of cash (which I have been when I was younger) things can be stressful/bothersome like when something breaks and you don't have the money to fix it, or you do something wrong and realize that you can't afford to 'do the right thing"

I appreciate the reference. Will probably be good reading once I get back to "work."

Its a great book - the issue we all have (me too) is getting caught up in the consumerism. To me, being wealthy is about not worrying about money and being able to do the things I want to do - there are still things I feel I can't afford that I want to do (so I'm not wealthy enough for where I want to be) but there is freedom and comfort in knowing that I can do most things I can dream of - even if I don't actually do them. I try to stay away from the flashy showing off (except Yellow NSX ) since it doesn't ultimately provide peace of mind but instead goes the other way.

 

[naaman]

Alrighty...

In the past month I have been able to make dramatic reductions in my accumulated debt. This is pretty exciteing, especially since a few years ago, I couldn't see anyway out my "pit of despair."

I've been watching my credit score, and it's gone up 27 points in the last month.

So here's an idea, tell me what you think:

As it is now, some of my money is being "sucked up" by existing debt. However, since I have paid off much of my debt already, I could continue making monthly payments, but to myself instead. Obviously, I can live on what income has not been put toward debt, so if I take all (or a portion thereof) of that money that was going to creditors and instead put it in a high interest savings account, I could make out pretty good, no?

It sounds like a good idea to me, but all I know about money and economics is what I learned in high school...

Considerations?

 

[Ryanmcd2]

Does anyone know how to get late tax leans off the credit? I did not pay in 2001 and have a 245k tax debt on my credit now even though It's "Paid in full" it's still on it. I really don't care too much about credit as I dont use it but it pisses me off having that on file.

 

[Hasdrubal]

Just look at the interest rates for investment compared to your remaining credit card debt. Most low-risk things like CDs or certain of the mutual funds will almost always have a much lower positive return than the negative of the credit cards.

The only way I can think of to change that is if you opened up a new card and did a balance transfer at a low rate. I did that myself, with a Bank of America card at a 1% transfer rate, and it let me reduce my debt load a bit faster than I could have otherwise.

The only problems are if you miss a payment, or max the card out, they can sometimes bump your rate up to something like 30%. Read the fine print before you agree to anything. Also, the transfer rate on mine is only good until October this year, at which point it goes up to 12%. Not a problem for me, since it will be completely paid off before then, but still something to watch out for.

Nick

 

[NSXGMS]

Does anyone know how to get late tax leans off the credit? I did not pay in 2001 and have a 245k tax debt on my credit now even though It's "Paid in full" it's still on it. I really don't care too much about credit as I dont use it but it pisses me off having that on file.

As long as it shows paid you should not be worried. It's when it continues to show unpaid even if it's been paid is when things can get messy. It probably never affected your actual score that much if at all anyway.

This type of stuff can stay on your report for a long time. I've seen old stuff like this stay on for 10+ years. Doesn't mean it's causing any trouble. And there's nothing much you can do about it.

 

[NSXGMS]

So here's an idea, tell me what you think:

As it is now, some of my money is being "sucked up" by existing debt. However, since I have paid off much of my debt already, I could continue making monthly payments, but to myself instead. Obviously, I can live on what income has not been put toward debt, so if I take all (or a portion thereof) of that money that was going to creditors and instead put it in a high interest savings account, I could make out pretty good, no?

This is what we call entry level investing. :wink:

When you put your money away it's called saving. When you put it somwhere where it works for you (generates a return via interest, etc.) it's called investing. Any interest being charged to you by a debtor is a cost that hurts your other investment gains, i.e. your bottom line.

Do not borrow any money if you can avoid it (credit cards, loans, etc.) and always "lend' your money whenever possible. Only borrow money if the rate being charged is lower than your expected rate of return gained from utilizing it (differentiation).

I would stick as much extra cash as possible in Roth IRA, traditional IRA & mutual funds. Everything else save in a money market type account that allows free immediate access if you need it.

If you can afford to make the "payments" to yourself rather than the credit card companies then do it, absolutely.

 

[Ko-nsx]

i dont have any credit card debt, but i do buy what i want. I remember my dad had a friend that was very frugal and saved and invested every penny. He didn't buy himself anything because i guess he liked to brag about what he had in the bank and his net worth. He used to tease me saying he had enough money to buy 2 nsx's and women to go with them, just because i had a car payment! He had a stroke and died. I don't remember him getting buried with any of his assets. Have some fun, because life is short. You can always get what you want at your price if your patient and willing search a little more.

Good credit is great but cash is king. Credit only counts when you have to buy something sizeable. Scores get better when the DTR is small and with time. Ihave heard peole use this co
www.lexingtonlaw.com

 

[Big_D]

It's always better to pay off the balance on your credit cards every month. Use their money for the 28-30 day grace period and then pay the bill when it comes. Get a card that pays frequent flyer miles and use it for everything...you really accumulate points fast.

On a side note...

I was trying to beat my wifes FICO score and decided to cancel some old credit cards that I hadn't used in several years. Afterwards my score went down. It didn't make sense to me. It is irritating that my wife's score is higher than mine when I pay all the bills and she hadn't worked in over 14 years. Oh well...the only good thing was that her score went down also..ha ha:smile: