Fix my credit!

In My Humble Opinion
1

Or more accurately, tell me how to fix my own.

I just got a new job that will release me from grad-school/adjuncting financial hell. I’ll be making twice as much as I ever have in my life and it’s finally time to fix my crappy credit. Never having had anything other than crappy credit, I have no idea where to begin, and googling only turns up operations that look rather dodgy.

My goals:

  1. Get out of debt. Totally, completely 100%, except for …
  2. The $10-15,000 car loan I want to take this spring.
  3. Have a real, live honest-to-god normal-person credit card or two.

The facts:
–My credit score is 575.

–I have a handful of waaay past due accounts, most assigned to collection agencies, totalling $2300.

– w/ my new job, I am a 34 yo single male making $41,000 with no known liabilities … no mortgage, car payments, school loans, etc. Just rent and food (I do have a loan I’m paying off, but that’s a private arrangement).

The questions:
– None of the items on my CR are things I can honestly dispute. Should I set up payments with these people, or offer to settle with them, and how much would be a good settlement to ask for? 50%?

– What’s the best way of starting to establish credit? A secured credit card? Are there any quick-n-easy tricks?

Basically, what I’m looking for is the quickest and easiest (not necessarily the cheapest) honest way to get out of debt and get my score up. I will happily pay someone a reasonable amount to negotiate on my behalf, or to pay some obnoxious fee now if it will get me to my goals faster.

I really am out to sea here. Someone show me how to be middle-class!

2

Collection agencies are usually willing to settle the account for signifigantly less than what is owed, sometimes low as 25%. Call them and see what they are willing to do to settle the account. (This will require you to pay a lump sum though.)

3

Know most about Canadian credit…however, I would suggest you call collection agencies and offer a lump sum, one time payment of debt. the cmpanies you owe have already written off this money to bad debts so anything they recover is a bonus to them (along with the 20-30% they have to pay the collections agency). Unfortunately it will take a while for these to be erased from your credit report.

4

Get everything in writing before you send them a dime. Keep copies of everything. Followup with the credit reporting agencies to be sure the collection agencies report the accounts as paid. Dispute the items if they are not reporting correctly in a timely fashion.

5

So is it better, from a credit-score POV, to pay them off in a limp sum, or to reopen the account and make several payments?

Anyone work for Equifax? :wink:

6

Check out this website:

Clark is a consumer advocate/talk radio host. His website has a lot of good information about any money or consumer related topic you could think of. (And awesome travel advice, too.) The message boards are really good.

I know he recommends talking to the Consumer Credit Counseling Service for people in serious debt.

7

I’m curious why you don’t just pay the collection agencies what you owe. You’re the one who spent the money, aren’t you? Why not do the right thing and pay back what you took?

A note about paying off collection agencies - I went to a lecture from the Alberta Debt Counselling Centre, and they also said it is important to get it in writing when you settle with a collection agency. If they want $2300 and you pay $2300, make sure they will sign something saying that the debt is paid in full or whatever.

Also, debts assigned to collection agencies still show up on your credit rating for (I believe) seven years after they are settled (paid) here. It’s probably a similar length of time where you are. Bottom line - pay the bad debts as soon as possible to start your clock for the period of time that they stay on your CR.

8

Well, not that this is the best advice, but I’ll take a crack at it:

Anything already in collections- Shine it on. Screw them. It will drop off after 7 years (from posting). Even if you pay it- in full- right now, it will remain a negitive rating for the next 7 years. Why bother? Keep the money and pay "salvagable’ accounts.

Late accounts- Pay them off ASAP. If credit cards, DO NOT CLOSE THEM! Once paid down, use once a month or so, and pay them off. Re-build your good payment history with these. They will still show “late pay history” but also will show open for a long period of time. As you keep them up to date for a long period of time, the lates will lose some signifigance.

Get new, un-secured, no-fee credit cards. Use them for purchases and pay them off immediately. DO NOT PAY FINANCE CHARGES!

Get that loan for a car. High dollar (15k+) and DO NOT SCREW IT UP!! Make your payments, on time. Go the length of the term if you have to, or pay it off “somewhat” early. Don’t pay it off within the first year or two, you won’t get much credit for it.

You will be fine in just a few years. Stay away from health clubs, record/DVD/CD clubs, book clubs or any crap that sends you stuff without you wanting/requesting it. They send you to collections in a heart-beat. All that crap they foist on you is in thrift-shops for pennys.

One last thing to consider is that most consumer credit is soley “score” driven now, so there is very little room for “intrepretation” by underwriters. Getting new credit is easy. You are an attractive prospect for high-rate cards. They make a fortune off “high-risk” people. Take it slow, and make the monthly payments on any new accounts (avoiding high interest payments) and soon, your score will rise as the negitives drop off.

Basically, just pay your bills.

9

I have to agree with what gatopescado said.

I had horrible credit a few years ago. I didn’t pay for anything. Had 6 credit cards, didn’t pay the phone bill, power bill or cable bill. At one point I was $17,000 in debt, a college drop-out with a low-paying job.

Even though my personal life was a disaster, my professional life was taking off. I got a new job and moved to South Carolina. I moved in with my uncle, so nothing was in my name and the bill collectors could not find me. My parents would shred every bill that was sent to their house in my name.

Then I met my wife and I was very upfront about my money problems. At the time, she made a lot more money than I and I moved in with her. We both decided that if we were to have a life together, we would have to tackle these debts. So we did. The collectors tracked me down and I started paying. Luckily, she payed all the utilities and rent and I would send most of my money to the collection agencies.

Most of the collection agencies were real nice to work with. I would send them what I could. A few were terrible and threaten to do all kinds of nasty stuff. But I held my ground. My credit score was already screwed, so what were they going to do.

After a while, the agencies would offer me deals, just to get me off their books. They would cut my debt to them in half. I took all the offers I could afford. To take care of my last debt, we borrowed $1,000 from my grandmother and in three months we paid her back. Out of the orginial $17,000 debt, I paid about $10,000.

After three years, I had no debt. I got a used cheap truck and paid cash for it. I recently applied for and got a credit card with a $400 limit. I am on the road to recovery. I now pay all the utilities and we are saving for a down payment on a house. In a few months all the ugliness on the credit report will be gone.

The moral of the story don’t let the collection agencies bully you into paying more than you can handle. It may take a few years, but if you are carefull about money everything will be OK.

10

I disagree. You pay these because you owe them money. It’s karmic dues, even if it isn’t the most productive use of your money in relation to your credit score.

11

Never ever deal with a collection agency. Never give them one cent. Send a letter to them (regestered mail is highly advised) stating that they shall only communicate with you through the mail. Never give them any phone numbers. Then clear the debt with the origional debtor. Never through the collection people.

12

Wait a minute…can’t collection agencies take you to court and sue you for the amount owed? What about having your wages garnished?

I have a bill with a collection agency, and there’s no way I want to be sued over it (and have to pay court costs, etc.) and then have it attached to my wages for collection…

13

That’s great advice, except some companies sell their debts to collection agencies, so going back to the original company is pointless. And yes, phall0106, that is exactly what can happen. Some companies will forgive “uncollectable” debts; some will chase you to the ends of the earth using every legal means available.

I agree with telemark. YOU earned the debt by buying or using something or taking money and using it; not paying it back is very similar to stealing in my mind. This is very much an integrity thing with me.

14

Obtain a credit report from Equifax - it’s free in snailmail - takes about two weeks - fax two pieces id and a signed letter requesting your credit report. Do not pay for your credit report, there is no need.

Chances are, the companies you owed money to and they sent to collection, have already written off the debt. They will have to pay the collection agencies anyway so they don’t particularly care if you pay it or not. Which is why the collection agencies are so much more aggressive - they have “bought” the receivable and, if they collect it, they stand to gain about 20 - 30% commission on it (it’s a graduated scale depending on how much $$$ the receivable is).

It is better to pay off the debt than not to pay it. If you can re-open an account (doubtful) then do that, use it carefully once or twice a month, pay it off completely (once you pay interest charges on credit cards, you lose whatever you hoped to gain by extending debt, i.e. Sears has a special for dishwashers - their admin fee to put it on your Sears card (no interest for six months, of course) is $40.00. If you buy the dishwasher on a regular credit card, pay it off at the end of the month or when it is due, do not pay the administration fee, you will be further ahead then putting in on the Sears card and paying that stupid fee) - the no interest really doesn’t matter at this point, you’ve already paid too much.

Once you have cleared all this up, pay the debt off with the condition that the reporting company report debt paid completely and immediately, (getting EVERYTHING in writing, including who you may have spoke to on the telephone), carefully apply for no fee credit cards, use them once in a while, pay them off and soon your credit will be markedly improved. Once you have all this cleared up, request another copy of your credit report to make sure it is done after about 60 days. Check it carefully and then, once a year, request it be sent to you. Just to make sure everything is still ok.

15

There’s also a 1-800 number you can call to request it that doesn’t require you to fax any id or anything. I just did this - it showed up in about two weeks.

16

I’m in the Telemark/featherlou camp - leaving complex strategy and legal tricks aside, the simple path to a good credit rating is to be the kind of person who, when he makes a promise to pay, always delivers.

Question: isn’t it always possible for an entity that made a negative entry in your credit rating to remove it? If, long after XYZ has given up hope that you’d pay, you call them and said: “I’d like to see if I could settle my debt, and in return have the entry in my credit report removed,” would they be able to act on this?

17

Thanks to all for responding.

My reasoning regarding the debts is thus: In principle, I agree with Telemark and featherlou. I bought stuff, I made bad choices, I screwed up. Just walking away from the debt, even if I could, seems dishonorable to me. At the same time:

  1. Probably half or more of that debt comes from high interest rates, exhorbitant financing fees and the like. On a visceral level, that’s a bit different to me than taking something a more concrete.

  2. None of the debts are owed to original creditors. They have all been purchased by collection agencies.

  3. All of them have been informally written off in the sense that they aren’t calling or writing me. I will have to seek them out to pay them off.

  4. To be very honest, to a certain extent I use the “you knew I was a scorpion” defense. Most of them knowing full well I was a poor credit risk. I acknowlege that this is a rationalization; but I’ve ceased to see hypocrisy as the worst of all sins.

  5. Possibly the best defense I can muster is that a lot of these debts date from periods of … shall we say “mental disorganization.” I’ve been on and off depression medication, etc. etc. I suspect that if I owed a million dollars I could get a lawyer to argue that I was mentally incompetent at some points in the last decade.

All things considered, I think a settlement is fair enough for all concerned. I’m at peace with the decision. Open another thread if you want to discuss the abstract ethical issues involved.

As to practicalities:

Can anyone else confirm these? (Not that I don’t trust gatopescado :wink: )

On Preview: I had thought I could do as Xema suggests, and settle in return for getting it off my report. True?

When you say finance charges, you meen the membership fees some of the cards charge? Why is this bad? I’m not sure I can get a “good” card.

I got it. How do you think I knew my score? :stuck_out_tongue:
And Brendan Donovan, it’s always odd to see your name on the boards. I knew “you” in college. You don’t still hate me, do you? :smiley:

Off to see Magnolia’s links.

18

I don’t think anyone would argue with making a mutual settlement with whoever owns the debt now. If they agree with that I think that is an excellent solution. The other points all sound like excuses, not reasons. But that is beyond the scope of this discussion so I’ll bow out now and wish you the best of luck.

19

AFTER you settle/pay off a bad debt, you still get an R7 rating on your credit report for that debt for seven years - that means that it went to collection, and is as bad a rating as you can get. The sooner you settle it, the sooner the clock starts on your seven year’s penance.

As for finance charges, credit cards charge fees sometimes, and stores sometimes charge fees when you buy stuff from them. Both are bad uses of credit; I don’t know if you can get a good card at this point, either.

My best advice to you is talk to a non-profit debt counselling service. They’ll know all the local laws, and get you on the right track.

20

Is the “R7” rating the same for paying off vs. settling? I mean, I’d be willing to pay off the whole amount if it’s better in an improving-my-credit-score sense.