Umm, Mr. Slant is an expert in this field.
Altho in theory, a payment is* not supposed to *restart a SOL period, in practice it often does.
What the link suggests is that gettng a credit card is good, but:
(a) don’t max it out… 30% or less of max. My suggestion - take any of your regular bills - like cable or cell phone - and if you can pay it through credit card, do that. Buy gas if you have a car. Then pay the card in full. This establishes:
(b) regular and good payment history. Provided that, having moved your debts on the card, you pay them off at the same time.
© Don’t apply for more than 1 card for now. Note the warning about those who apply for a lot of credit in a short time.
As to your assertion that judgments are reported for 10 years on your credit report, i cite the Fair Credit Reporting Act, http://www.ftc.gov/os/statutes/031224fcra.pdf :
§ 605. Requirements relating to information contained in consumer reports [15 U.S.C. §1681c]
(a) Information excluded from consumer reports. Except as authorized under subsection
(b) of this section, no consumer reporting agency may make any consumer report
containing any of the following items of information:
(1) Cases under title 11 [United States Code] or under the Bankruptcy Act that, from
the date of entry of the order for relief or the date of adjudication, as the case may
be, antedate the report by more than 10 years.
** (2) Civil suits, civil judgments, and records of arrest that from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period. **
(3) Paid tax liens which, from date of payment, antedate the report by more than
seven years.
(4) Accounts placed for collection or charged to profit and loss which antedate the
report by more than seven years.
(5) Any other adverse item of information, other than records of convictions of
crimes which antedates the report by more than seven years.
As you noted, this part varies on a state-by-state basis, which was why I referred the OP to a local attorney practiced in the appropriate field of law. Unless he can pay in full, and intends to do so, he needs to know whether or not making partial payments to said landlord may increase the chances of aggressive collection activity on the part of the landlord.
Additionally, I have no way of knowing if his landlord is likely to bother renewing this judgment; once again, a local attorney would not only understand his local law better, but might even know the collection practices of the landlord in question.
I am not advocating not paying all of your bills, but when you have to choose to pay only some today and leave the rest for tomorrow, it’s good to be able to choose between writing checks and having yours wages garnished and your bank accounts attached.
The gentleman has already been sued once for a bad debt, and in 7 years, has not been able and/or willing to repay this debt.
You may wish to suggest that he should engage in unsecured consumer lending, but without knowing him better than either of us is likely to, I would respectfully submit that we ought not encourage him towards that risky option.
Had he had a credit card or three, the events that led to a $3000 judgment might well have led to bankruptcy.
Okay.
As an aside, in response to certain previous posts, I’m going to suggest that you avoid gas station and retail business store credit.
I’ve seen repeated statements, murky though they were, from industry insiders that trade lines like that are considered sub-prime products and taint your report.
Unless we get a Fair Isaac employee dropping by saying that that has changed, in which case I apologize.
But what dropped your score – paying it off all at once or the four missed payments?
I ask because I’m refinancing a home equity loan, to get lower interest and pay off a high interest card (no missed payments). Now you’ve got me wondering if I should just make higher payments on the credit card for a few months, instead of paying it off all at once.
A quick paydown won’t show in your FICO score; the resolution of their data might not even be able to track that you DID a quick paydown.
What will show in the FICO score is the change in utilization %.
There’s an optimal % of utilization of credit, which is slightly higher than zero. Best guess is that it’s 15%, but the credit scoring people keep that obtuse, and for some people some factors matter more than they do for others.
I would take your high interest card, then pay it down to 15% of its limit, then pay it off entirely the moment your HELOC funds.
It it’s below 15% already, make minimum payments, then, once again, pay the thing off the moment you get the HELOC check or wire transfer.
There’s a chance my advice above isn’t right; the scoring algorithms are devilishly complex. Also, some evidence points to the difference in score between 0% and 15% utilization being quite small.
Additionally, if you’ve got more than one card with a substantial balance… my advice could be off in the weeds.
One of the things all the advisors say is to reduce the credit card debt, to improve the score. So my WAG is that if you have cash to pay it down to try to bring your ratios down to 30% utilization or better, then do that as soon as you can. I assume the longer your utilization is in that lower range, the better for your score.
My speculation:
There’s a lot of discussion about whether you should carry a balance, vs. keeping the card paid off every month. It seems (to me) that the consensus is you should “game” things so that your monthly credit report from the card shows some balance, but that the balance shown is not a large portion of the credit limit. Depending on when your company reports your balance, if you pay it off before they take their snapshot, your report might show zero (thereby not proving that you have and use credit).
My main card happens to report the balance some time between when the statement closes and the payment is due, so it’s all good. Even if they didn’t, I use the card pretty much daily so there would always be a balance.
Paying it off all at once dropped my score. That was about a year and change after the four missed payments, so my score had already taken the hit from that.
It was only a temporary hit, and was about 20-30 points. The points recovered within three or four months. I would not hesitate doing the same thing again.
Here’s what happened in more detail: I owed $7.5K to a credit card when I moved back to the US. I found a job and started slowly and steadily paying it off. Because I had difficulty making payments, they gave me a hardship interest rate (or whatever they call it.) So they dropped my APR to 7%. After one year of steady payments (and a steady job), they discovered that since I can afford my payments now, they should jack my interest rate somewhere into the high teens or low 20s, since I no longer need the help.
At that point, I still had about $5K left on the debt. I said “fuck that,” swallowed my pride, borrowed some money from my folks, paid off the card (and paid off my parents in 10 months.) When I did that, my score (which I had been monitoring) did drop those 20-30 points. You have to admit, when somebody has been carrying a $7.5K debt for a few years and been making $200/month payments on it, and suddenly a sweeping payment comes in to clear all the debt, it looks odd, so the scoring model had a right to be suspicious.
It doesn’t make sense to me to pay interest just so I can bump by FICO a few points. That’s money just flushed away.
But keep in mind that too much available credit can result in a lower score due to the fact that a lender knows you can run out tomorrow and incur an additional $50K in credit, pushing you into default on their note.
I think the laser focus on FICO is a little misguided. If you live within your means, you can generally pay cash for anything but the most dire emergency, and have no use for FICO.
This might be a symptom of the recent credit bust. Instead of paying attention to the budget and redefining what is a must have, people pay attention to how to bump their FICO.
Unsurprisingly, because of the mystery of the system, it’s hard to track down the straight dope on this. Googling has shown a number of people who have had drops in scores due to “windfall payments.” One even claims Fair Isaac has told said this, but provides no citation. Others agree with you, and say it shouldn’t make a difference.
All I know is, when my score dropped those points (and I did not close the account), my utilization went from something like 50% down to about 2 or 3% (I still had one card with a minor balance on it.) The 20-point drop, as far as I can see, had to have been caused by the sudden pay down, and FICO was certainly correct in being suspicious about it. There could only be two explanations for it: an “invisible” loan or a windfall. Why else would somebody who had been making $200-300 or so/month payments suddenly have $5K to pay it off all at once?
That said, I would never take the potential of a 20-point drop from paying off a high-interest loan if I have the means to.
My contention is that with the way the credit reporting system moves and queues data, they really don’t have the resolution to even TRY to detect quick paydowns like that.
I don’t think the files that get dumped on Equifax etc even include the balances over time.
A large amount of available credit hurts you in proprietary bank-lender-based scoring models.
Since FICO doesn’t factor your income, it can’t reasonable judge you harshly for having ‘too much unsecured credit’ available.
For some people, a $50K trade line only represents a week’s pay.
I’m not saying it won’t keep you from getting a loan, but it won’t hurt your score from FICO.
If it means a 1% rate difference on a 15-year home note, it makes sense DURING THE PERIOD RIGHT BEFORE your getting financing.
Still, it makes sense on paper, but it offends my sensibilities, and likely those of any number of other right-thinking Americans.
Well, this board seems to say that Experian and such do keep track of payment history. Note that those posts are from 2006, and in the same general time period where I paid off my loan. Perhaps things are different now. When I made my payment, credit advice at the time did say not to be surprised if your score dropped with an unexpected large payment.
By going cash only you’re missing out on two things. One thing is that you’re actually paying more for items cause most stores price items as if they will be paid by credit card. Credit Card’s charge 2-3% of the purchase price to the store for accepting credit cards. So if you pay cash, you’re giving the store 2-3% more, for free.
The other thing you’re missing out on is that most credit cards have some sort of rewards program. So you could be earning a portion of that 2-3% in the form of a kick back called a reward program. Chase has an Amazon card that gives points that can be used to buy things off Amazon, even things sold by individuals.
I pay the full balance off every month. I pay all my bills, that I can, with the card. I don’t buy dollars from the mint to rack up points, however I’m always looking to pay with the card.
I did go all cash for five months as part as my Larry Winget, You’re Broke Cause You Want To Be, get out of debt plan. So I’ve operated on a cash basis. It really helped me break the “Using-The-Credit-Card-Is-Not-Really-Money” idea. Then I read about the cash payers pay more, no rewards deal and went back to using the card.
Utilization % = how much available credit I’ve used? If I’ve used 30% of my available credit on a card, my utilization is 30%? (I’m too dumb to use credit – I should just box it up and return it!)
The loan funds will be available Friday. Now I’m thinking maybe I should take a big chunk out of the high interest card and pay down two other cards – low interest and small balances but the balances are about 80% of the available credit. Would that be a better plan?
I don’t plan to use the cards again except for dire (and I mean dire) emergencies. This loan is putting about $250 a month in my pocket that I didn’t have before, so I shouldn’t need the cards.
I’m glad to concede that your data is firmer than mine on this.
Right. The bank card has a $10,000 limit reported to the credit reporting agency, you’ve used $3,000 and have $7,000 in available credit, that’s 30% utilization.
Well, once the loan funds, do you have any immediate plans to acquire more credit?
If not, then make minimum payments on all loan products except for the loan product with the highest interest rate, then rinse wash and repeat until all you have left is your mortgage.
There’s no need to spend your time rigging your FICO if you don’t intend on using credit for the next 5 years. Just focus on fee and interest avoidance.
Now, if your next project after getting your HELOC is going to be qualifying for a $50,000 unsecured line of credit for your small business, my advice is going to be different. If that, or a car loan is the case, and you’re willing to lose money on interest and fees in order to get a better rate:
- Make minimum payments on all products except for those products with more than 15% utilization.
- Focus all free cash flow on getting the utilization on your ‘maxed out’ cards down under 50%, and then down to 15%.
- Then pay off the one with the highest APR first, then the next highest APR.
Hopefully, after that HELOC, you won’t need to do any more borrowing for a long time.
Not “immediate”, but I might need to trade in my car in a few years. I’m hoping to keep it until it hits 200K miles, which will be 4-5 years. If/when that happens, I’ll finance it through my credit union. I’ve been with them for about 20 years and they’ve been good to me.
I’ll think some more about what to do with the “extra” money. Your advice is much appreciated and you’ve given me some good guidelines. 