Credit Repair Question

Factual Questions
1

I have some specific questions regarding credit repair. I defaulted on several credit cards back in '96. In January of 2000 my financial state was much better. The credit cards were on my report, but I was able to get an FHA home loan. One of the requirements when I got the loan was to pay off all of the delinquent and charged off accounts. No problem- I had a lot of cash at the time.

Now I am interested in refinancing my home (w/o FHA) and/or getting a home equity loan. I just pulled my credit reports, and I have 3 accounts listed as charged off. I defaulted on these accounts in late 96, but I paid them off in early 2000. Do these entries expire based on when I defaulted or when I paid them off? They are reporting a ‘Balance Date’ of 2000, but if the clock started in 96 I should be able to get them off without too many problems, right?

A related question. I bought a new car last year and I was able to get the low dealer financing (.9%), but at the same time I inquired at my bank about a home equity loan, and after they ran my credit they said no way. Heres the interesting part- the both used the same credit agency, so I know they both saw the same info. Why the discrepancy (other than the fact Nissan wanted to sell a car)?

2

If the debt was reported in 1996 it should have come off your report in 2003. The only reason I can think why it might legitimately still be there is if it didn’t actually get reported until 1997 despite the 1996 “default,” in which case it could legitimately be there for a few more months. Either way if you want them gone you can dispute them through the credit bureau. They have 30 days to confirm the legitimacy of the debt or remove it from the report, and my feeling is with a debt that old they’ll just scrub it rather than bother trying to track it down to confirm it.

As for the discrepancy between your bank and the car dealership, my WAG is that they may look for different sorts of debts. If you defaulted on a bank card a bank may be less willing to overlook it. Also the dealer may feel there’s less risk financing $15,000 or whatever on a car than the risk the bank sees in making the loan/refinancing.

3

So it doesn’t sound like paying them off in 2000 would reset the status of any of? If thats the case they should be very easy to remove.

Thanks for the info.

4

ok, there’s a lot to address here.

#1 if you paid off those accounts in 2000, they’ll be on your credit report for 7 years. Just because you paid them off, doesn’t mean they go away. They just show as 0 balances. (Sometimes people miss this difference) if you had decided to not pay them at all, and waited til 2003, then the statute of limitations is up, and you no longer owe. (Although in that case, I’m not sure if they stay on your report or not)
If you pay any amount within 7 years, then 7 years starts all over again. So, most likely, they are there til 2007.

#2 car financing vs. Home Equity loan.
In order to get a home equity loan, you must have a FICO score of at least 680, and most programs demand over 700. (FICO is a score from 350 to 850, higher is better.) Most car places will give you a loan if you come in breathing, and some of the more old fashioned places don’t care about FICO… they just look at your history for the past 12 months… if you’re clean (i.e. no lates more than 30 days) then you qualify for their low financing. Let’s face it, it’s a heck of a lot easier to repossess a car and resell it then to do so with a house, both legally and due to the physical size.

#3 Refinancing. With how rates are right now, you’d probably do better to refinance with FHA. With FHA, you can cash out up to 85% of the value of your home, and the 1.5% funding fee you paid the first time still goes towards paying it this time. (Too much to explain here.) Right now you can easily get an FHA loan at 6.5%, while conventional mortgages are at @5.875% or so. (based on a loan amount of $180,000 in most states) You’ll still pay the mortgage insurance, but FHA mortgage insurance goes away automatically after 5 years. (I’d have to check and see if the years you’ve already had FHA would count). And as an aside, if you just want to refinance without taking any cash out, you can do an FHA streamline… which means no credit report, and no income verification. It’s really fast and easy. (FHA looks at it like “well, they’ve made all their payments on time up til now, it only makes sense that they’d do so at a lower rate.)

Huff… puff…, that was a lot of writing. If you want more specific info, let me know what state, what loan amount, etc. Also, what your FICO score is showing up as on your Credit reports would be helpful… with that number, I could tell you exactly what you qualify for.

5

I’m like 99% sure this is wrong. The creditor can report the change to the status of the account, but paying doesn’t start the seven year clock over. If the debt was put on the report in 1996 then it goes off in 2003 regardless of whether there was payment on it or not. I base this in part on my own experience of paying off a debt that was six and a half years old at the time of payment. It’s gone now, and if paying it reset the clock then it should still be on my report.

6

You may be right about that. I’ll ask at work tomorrow. I just know from a settlement attorney that I deal with that if you, say, owe a debt, the creditor has 7 years to collect. If that 7 years goes by, then the statute of limitations is up and thy can no longer pursue legal action. however, if you pay them a dollar on the 364th day, then the 7 years does start over, and they have another 7 to seek action. sooooo, I was saying that it may apply to bsanes situation because they decided to pay. However, as you pointed out, it was paid in full, (and the in-full part is the key here) and therefor may be subject to different rules. As I said, I will try to find out for sure tomorrow at work.

7

You are confusing the statute of limitations on written contracts, which varies from state to state, with the 7-year obsolescence period on negative information in your credit reports.

Yes, if you pay a creditor, each payment resets the clock by which they can take legal action against you. It does NOT reset the clock on credit reporting.

Fair Credit Reporting Act Section 605(a):

Before the 1996 FCRA revision, there was some ambiguity about when that period actually begins. It’s safe to assume in your case, though, that your 7-year period is definitely over or almost over, no matter if you’ve paid on it or not.

8

Cool. I am glad to know that actually… it will help in my day to day dealings and save me from having to ask the boss.

9

Another reason for the different response between the bank and the car dealer to the same poor credit report: for the dealer, if you default on the loan and they have to reposses the car, they can easily deal with it – clean it up a bit and put it on their used car lot. But a bank is not in the car sales business, so when they reposses a car, they usually end up sending it thru an auction, and get only wholesale value for it. So the actual downside risk for a car dealer is less than for a bank.

10

Resident credit reporting guy checking in.

Let’s set some things straight:

– If a debt is charged off in Dec 1996, and there was a string of delinquencies starting in June 1996 that led up to the charge off, the date for tracking the 7-year rule goes way back to the original delinquency in the string of delinquencies, which would be June, 1996. Problem: Not all creditors were tracking this very effectively (the original date that led up to the charge off), but they were probably good at tracking the actual charge off date. They should have that date down pat. If they reported a charge off in 1996, the credit bureaus will delete is automatically just before the 7 year limit …provided the creditor reported the right date.

– Banks, mortgage companies, credit card issuers, etc all use their own risk and scoring models. It’s part of the risk versus sales tolerance levels they are willing to put up with. You can get different interest rates, or one may offer your a loan and one might deny you. They might even all use the most popular scoring models from FICO, but they drawn lines through different tiers of scores. They are businesses with different products, that’s all.

—If a debt ‘goes bad’, say in 1995, paying the debt or some part of it in 2000 **does not ** reset any date/debt! That would be in direct opposition the the Fair Credit Reporting Act, and it would also be incredibly DUMB business for a creditor trying to collect a debt. Why the hell would anyone pay if it made things WORSE? You are always motivated to make things better, like your credit report.

11

Not quite right. A payment in 2000 will:

  1. Possibly drop your FICO score. Part of the FICO model is based on recency of activity. And even though you have paid, which should be a positive thing, it gets picked up as a debt with recent activity, which drops the score.

  2. Possibly toll the statute of limitations. If this happens, the creditor can sue you for the debt after whatever time the statute normally would have run.

  3. Because of 2 above, result in the creditor obtaining a judgment against you. If the creditor gets a judgment. The judgment stays on the report for seven years. And a creditor can sue you whether the debt has rolled off of the report or not.

We just discussed this in this thread

12

…you are taking my response out of context as it was posted in direct response to the concern that paying on a bad debt would extend it’s stay on a credit report.

FACT: Paying off, or making payments on a bad debt does not extend the reporting lenght of said debt. That was the issue that was being addressed.

As for the liability and credit scoring complexities which vary, I did not address those.

Please do not dump me into other concerns you have over credit reporting, scoring models and their complexities (which vary from model to model) and liability of debts.

Thank You.

13

[QUOTE=PhilsterFACT: Paying off, or making payments on a bad debt does not extend the reporting lenght of said debt. That was the issue that was being addressed.
QUOTE]

Sorry. I meant you no slight. You said

I understood the context, but wanted to be clear for those who might not that there are consequences to making such a payment. One of those consequences is that if the statute of limitations is extended, the creditor has longer to sue. If the creditor gets a judgment, then the judgment will be reported and will remain on the report for seven years from the date of its entry.

I agree that paying on a debt will not extend the debt’s stay on a credit report. That time is measured from the date of charge off or referral to collection. So paying on the debt will not lengthen the reporting time.

14

But philster you did say

That’s a general statement that isn’t exactly true. I think it’s really important to note for people that if you are 6 years into a debt that you haven’t made a single payment on, then it IS better to stick it out and not pay. Dumb business practice or not, that’s the way it is. Just that in short, you are not always motivated to do the right thing. This isn’t a dig at what you were saying, I just really think it’s important to make the difference clear.

15

A paid off bad debt is more favorable by all scoring models than an unpaid bad debt.

The OP stated s/he was active in pursuing loans, including a home loan. Having an improved credit rating might be key to:

Actually getting the loan and saving tens in thousands in interest

Getting a loan with a better rate than just scraping by for a new loan, saving even more tens of thousands of dollars.

Ignoring bad debt is effective is you can ignore the situation and ‘stick it out’, but the OP mentioned shopping for loans.

But I must remind someone again that we are addressing the OP. If you are actively seeking a loan which could save you 20, 30,000, 40,000 or more dollars, then you might be required o pay the debt or place money in escrow and even if you get a loan at a crappy rate, you might have secured a much better rate with the best possible credit score.

You want to shop for loans with the best credit rating. Paying off bad debts might be required by the lender, and if it isn’t, paying it in full likely will save you thousands over the long haul, and it happens to be ethical to boot.

So, back to the OP: you did the right thing by paying off the bad debts in full. It could only help your credit rating review by a major lender for a home loan and it didn’t extent the date of reporting.

16

Philster, I would love to see whatever you have on this topic. I get that question all the time, and have heard various stories about it, but I can’t find any evidence to support the conclusion. You can send it to me offline if you’d rather.

17

I’ll make an honest effort to show you something.
Settle for this anecdotal evidence that happens hundreds of times a day until I cn get you some direct info on scoring models:

mtg comp to buyer: You’re score is too low for the best rate. You have an unpaid collection for 750 bucks. You need to pay that off or demonstrate it isn’t your by having it removed.

buyer: I paid it off, and they updated it.

mtg comp: Good, I reran the report and score… and you moved up one tier.

(We see this hundreds of times per week. People call in for a ‘rush’ dispute. We see a mtg inquiry, we call the creditor, they confirm the bad debt was paid and we make the update. We call the mtg comp, they repull and they are relieved to be closing the deal now.)

18

So rather than post a new thread, and only having read the first ten, or so, posts:

My business failed over seven years ago. Can I now open a checking account? I went to open an account somewhere during that personal diaspora and was told, “Get out of here, you little Monkey!” Well, that’s the way I heard it anyway.

My total liability from the NSF checks was fairly small, say under a grand. How do I stand? Can I get on with a cash-free life?

19

You have a slightly different problem. NSF activity is reported between banks by the Chex systems. They claim to keep items on their reports for only five years, so you should be ok. If you have a clear Chex report, you ought to be able to open a checking account.

Individual nsf checks might also show up on your credit report as collection items. That is a separate issue, but should not affect your ability to open a checking account.