Credit Question

Factual Questions
1

I am in the process of trying to get a truck with my husband. Due to our debt/income ratio, it is necessary that I be on the loan.

Anyway, recently my student loan repayment started with out me realizing it. (This is incredibly stupid, but I rarely open my student loan mail because I get a statement every month telling me I owe nothing. Then, because I didn’t go to school this semester, I started getting notices to pay them, and didn’t realize that until very recently). I have since sent in the paperwork for a forebearance on these loans.

Anyway, in addition to this problem, I have a credit card that is past due. I only owe $200 on it, but it is in a very over-due status. That’s $200 total, not $200 minimum payment, just for the record in case this matters.

We have been approved for a loan, but the loan is at 9.99 % interest. The lady doing my paperwork stated that that was because of current issues on my credit report.

I should note, that I have had several positive listings on my credit report. Several montly bills that are paid on time every month, and also several past auto loans that were always paid on time, and paid in full. I’m also on a loan for our house, and there has never been any issues with that.

My question is that I’m wondering how long it would take my credit report to improve if I took care of the $200 credit card bill, and also when my forebearance goes through on the student loans (which I’m assuming makes them still a bad mark on my credit report, but maybe not AS bad as just having a loan being due, but unpaid if that makes any sense).

Does anyone have any experience with situations like this? Maybe somebody is a loan officer, and has experience with just this sort of situation.

I’m sorry this is so long and rambling, I’m just wondering how soon it would positively impact my ability to get an auto loan at a better rate.

2

Credit reports are simple little beasts really.

They contain:

  1. A list of your credit accounts. These include things like mortgages, student loans, car loans, and credit cards. Things like utilities are not typically credit accounts because you pay as you go.
  2. Account limits and balances
  3. Late payments to these accounts in 30, 60, and 90 day buckets.
  4. Income, employment status etc. are NOT included on a credit report.

It is really the late part rather than the amount that screws with your credit score the most. If you pay the balance in full (or the minimum due at this point) it will have a positive impact on your credit score. That will still take some time because it has to be processed in three places (bank, credit card company, credit reporting agency). It may take weeks at least.

After that, it is just a waiting game. The negative impact of late payments can stay with you for up to 7 years although the effect gets diminished as time goes on. You will probably see most of the effect go away within a year or two.

Here are some things you can do to improve your credit:

  1. Use your credit card again after you pay it off but pay it back immediately this time. You can’t build credit unless you are using credit. This will boost your score. Do the same thing every month until your score is in the range that you need it to be in.

  2. You could ask the credit card company if they can take off or reduce the ding if you send in full payment. I did this once with a student load company and it worked. Credit card companies may be tougher to crack though.

  3. Get free copies of your credit report from Transunion, Equifax, and Experian. You can review them for accuracy and doing that will make sure you understand what does and does not go into your credit score. Most people are horribly uninformed in this area and it is really senseless.

https://www.annualcreditreport.com/cra/index.jsp

3

Shagnasty,

I agree wholeheartedly with every word you said, except for:
“1) Use your credit card again after you pay it off but pay it back immediately this time. You can’t build credit unless you are using credit. This will boost your score. Do the same thing every month until your score is in the range that you need it to be in.”

The only reason to do that is to keep the account open. The bureaus don’t track when your last balance due was for an open credit card account.

As an aside, the way I read the OP, that credit card account is likely on the verge of being completely closed out to new charges, even if she pays it off. Of course, her “very past due” may mean 62 days, which you can likely come back from, rather than the 90+ days bracket, where your lender may seriously consider putting you on the “don’t extend any credit to this schmuck for the next 5 years” list.

4

That is odd although I believe you now that I think about it. I have heard that advise given in reputable money advise columns and things a few times. Why would they say that? Suppose you never used the card at all. That wouldn’t establish credit would it?

I could probably figure it out but are they analyzing based on the high balance field to see if it was ever used?

5

Actually, if you never used the card, it would STILL show up as an open trade line.
Really, the only reason I can think of to “use that card occasionally” is that it lowers the chance of them cancelling the card because you’re an unprofitable administrative hassle.
Perhaps “using that card occasionally” also buiilds you a history WITH the one company the card is with, enticing them to increase your limit, or whatever.

On your question, “are they analyzing based on the high balance field to see if it was ever used,” I have no evidence in either direction. They probably don’t see many consumers who have high limits and have NEVER charged on those cards. They may have not seen fit to even put that into their algorithm as a variable. God only knows.

6

If I may hyjack slightly:

Mostly because we’re stupid and partly because we’re two people living on one person’s not-great income, the new hubby and I are in a lot of debt.
Our credit card interest , depending on the card, runs between 12 to 29.9%. I’ve heard a rumor that I can threaten the companies to either reduce my APR or I will take my balance elsewhere. Supposedly, this is what Debt Reduction companies do for you. Has anyone had success at this?

Thanks.

7

Pullet:
You can ALWAYS call up ANY of your lenders and make ANY request you want.
Their willingness to play ball will depend on how much they want your business, the product you’re participating in and how credible your threat is
“How much they want your business” should explain itself… it is an equation composed of whether or not they make money on you versus how risky you are to them. At a certain point, they really would rather you got your credit from someone else for a given rate… they just couldn’t make money loaning 5% unsecured long-term to people with a 525 FICO score, as an extreme example.
“the product you’re participating in” refers to the credit product you received when you applied. An Amex Green Charge is handled differently from an Amex Platinum Charge, which is handled differently from the rarified Amex Black Charge. Each product will have a minimum and maximum APR handed out. Each product will have a minimum and maximum credit line as well. Certain products are tagged “sub-prime” and will never give very good interest rates or very high credit limits, no matter how badly you want them or how badly the CSR at the credit card company would like to give it to you. In cases like that, you may be required to transfer your balance to a DIFFERENT account under a DIFFERENT product from the same lender in order to get a better APR.
Finally, your threat to transfer if more believable the better your credit is. If you call and tell a credit card company rep that you’ve got a $20K offer for 9 months at zero percent interest and then he pulls your credit and sees your FICO score is 600, it’ll be obvious you’re bluffing.

8

Thanks, Mr Slant. You have given me the courage to try.

How do I get my actual credit score? I’ve been to the reporting agencies and gotten copies of our credit reports, but they don’t seem to have the scores on them.

9

More confusion:
Transunion let me see my credit score for an extra $5. I go for it. Before I send the payment over, they say my score is 843. After a few unrelated steps, they say my score is 643. WTF?

10

Forgot to comment on the “Debt Reduction Companies” you mentioned.
What you discussed is NOT the typical modus operandi for such companies.
Here is their typical game:

  1. You call. You talk to them. They give you a monthly payment to make to them. You begin making payments to them. You agree to apply for no new debt.
  2. They get your payment. They stick it in the bank.
  3. For at least a month, they don’t make payments to your creditors. You now have (new) late payments reported on your credit report. “At least a month” may be up to 3 or 4.
  4. Your CC companies get a call from the debt reduction company offerring terms X Y and Z. The DRC will pay X amount over Y payments at Z interest rate. If they agree to these terms, your DRC will begin payments. Incidentally, your DRC will pocket 2-10% of the money sent to your CC companies, per the agreement they negotiate the CC company. At this point the CC company will note on your credit report “In debt management program” and your payments WILL NOT be flagged as on-time, even if the DRC sends all payments per their agreement with the CC company. YOUR payments are NOT on time per your original agreement with the CC, and that fact will be reported. If the proposal isn’t accepted one month, they’ll call back later. After a debt is six mothers overdue, creditors tend to get desperate.
  5. If your CC company never agrees to the terms in step 4, you will simply default on this obligation. You will receive collections calls and may be sued. Being in “debt management” is not a bar to civil suit, garnishment or attachment of assets. Note that if you are successfully sued, collection efforts may force you to default on your agreement from step 1.
  6. A note that you are in “debt management” scores equally as bad as if you had declared bankruptcy.
  7. You will make payments for a period of time, until the program is completed.
  8. You will probably drop out of the program, based on statistics. It is quite likely you will also file bankruptcy, although I can’t say “probably” in this case.
  9. If you actually complete the program, the notes about “in debt management” may be removed from your credit report. Your late pays probably will not.
  10. If you had creditors who didn’t agree to the program in step 5 and didn’t go bankrupt, you will owe those creditors the original balance plus all late fees and accrued interest at penalty rates.
11

I have absolutely no idea why it said you had an 843 and then a 643. Either Transunion was having technical difficulties or you misread or misinterpreted something. I personally suspect it showed you a “sample” score the first time and a real score the second.
I’m sure you saw a chart showing you the relative percentile a 643 puts you in. How many people you’re more creditworthy than is not pertinent. How creditworthy 643 is is pertinent.
A 643 means you can do business with regular lenders (not scumbag subprime lenders like Providian and Orchard) but will qualify for only their bottom-rung unsecured products when you do qualify. You can expect to be denied credit frequently but also be approved for credit frequently.
A 643 probably means you have a medium to long length of history. You likely have some delinquencies that are only a year or three old and you’re likely using at least half of your available credit. That might not describe you, but it describes a lot of people with similar scores.
Your negotiating position is not strong, but neither is it pathetically weak.
Your 29% APRs bespeak something on which you’ve recently been delinquent. If you can possibly balance transfer that debt to a lower-APR card, do so, taking care to avoid balance transfer fees.
Do not apply for very many new lines of credit. Doing so can exacerbate your problems by further lowering your score, even if you don’t get a new loan because of the application.
Avoid debt consolidation loans, as they mostly serve to extend your time to repayment while their rates tend to be higher than credit cards you qualify for.
Never trade unsecured debt for secured. It doesn’t work out for most people based on statistics.
Good luck. Focus on paying this down ASAP and not borrowing again unless it’s for a house.

12

I’m stupid. You guessed it. Fortunately, Mr John Doe should be able to get that home loan handily.

And your description of how my credit got this way is spot on.

We’re trying everything we can to pay this down. If I could stop school to get a full-time job, we would get places (irony). If we can manage to limp along for another 3 years, my completed education should place us nicely. Sure sucks in the mean time.

Anyway, enough MSPIMS. Thanks for the info.

13

I just wanted to add that if you ever do go through one of the debt consolidation companies, it may be very difficult for you to be approved for a new loan. As a loan officer, I can often make exceptions if your debt to income ratio or loan to value ratio (on a secured loan) is too high, or even if your credit report shows past deliquencies or charge-offs. But if it shows that you were involved in a debt consolidation company within the last 2 years, I wouldn’t even have the authority to make an exception-it’s an automatic denial.

14

I highly recommend www.creditboards.com for all credit questions. The crowd there is very knowledgeable and patient with newbies.