T Nation

Credit Repair Worth It?

I spent several years royally screwing up my credit score, like any respectable young American is expected to do. Now, though, I have a family that I’d like to have a home for, and that score is really haunting me. So what I’m wondering is if it’s worth my while to go back and pay off some of the negative items that show up on my credit report.

I’m expecting a bit of a windfall next month in the form of a sizable tax return. I’ve checked my credit report, and I think that I can talk to these people and get the debts down to a price that I can pay off. The problem is that these accounts have already been closed and handed off to collections agencies, and I don’t know if it’s going to do me any good to pay them off now. I know that it’s the “right” thing to do, but I don’t know if I have anything to gain by paying them, as opposed to saving the money or using it to buy land.

Realistically, will it help my credit score at all to pay these things off, even though they are only going to stay on my report for another few years?

If anyone has any experience in this regard, I would appreciate any advice you can share. Thanks in advance.

You could pay the collection agencies. Collection agencies are in the business of getting from you what you owe. By paying the collection agency, that should help clean up your credit.

There are places that will help you negotiate your debt down, or at least reduce the collection fees associated with paying it off.

Mortgage lenders really do look at your credit score. A friend of mine still cannot get a car loan at a decent rate because of an outstanding utility bill from years ago.

I totally messed my credit up years ago when I was in college, and it still haunts me. I cannot get a loan, period.

I have worked to clean it up and can tell you what I have learned.

If the debt is over 7 years old, it should not be on your credit report any how, and paying it will only give you a warm fuzzy feeling.

You can negotiate with debt collectors to pay a fraction of what is owed. You can also negotiate with them what they will tell the credit bureaus. Often if you pay it off in full, they will agree to give you positive reports to the credit bureau, which will boost your credit score.

If you pay a fraction, they will just tell the credit bureau the debt has been paid, which doesnt really increase your score.

The number one thing you should do is contact them and negotiate with them. Bad credit will really screw you later in life, so you really need to fix it. I personally had a terrible time finding a place to stay because home owners and Apartment complexs wanted nothing to do with my credit.

Good luck bro.

[quote]Cunnivore wrote:

If anyone has any experience in this regard, I would appreciate any advice you can share. Thanks in advance.[/quote]

IMO, pay off whatever carries the highest interest first, score be damned.

Also, in addition to what nephorm said, dial back the withholdings if you’re getting such a huge refund. It’s your money and it could be paying off your debt throughout the year instead of sitting in Uncle Sam’s pockets while letting your monthly interest pile up.

Also: just because something disappears from your credit score doesn’t mean you don’t still owe it. Depending on the amounts, they could still file against you or try to put a lien on future property you may own. Check with a lawyer/credit specialist about that, though.

Its a tough call. Dealing with collection agencies sucks. I used to work for one years ago. Get all settlement offers in writing with some clause at the end that they offer to accept this settlement as PAYMENT IN FULL of the debt, with all collection activity to cease, and the appropriate credit reporting agencies be notified.

The hardest part isnt going to be finding an agency to take your money, but rather ensuring that they have the line items removed, which is what your trying to accomplish. Keep the settlement offer letter for your records as it may be the only way you can prove the item was paid. Items on your report over 7 years old can no longer be reported. If you make a payment on one of them it starts the 7 year cycle all over again.

Not sure about this particular issue, but please check out The Total Money Makeover book by Dave Ramsey.

Pick up a copy!

Honestly you have to ask yourself: Do you want to pay off old debt or do you want a higher credit score? They don’t always mean the same thing. If you only want to improve your credit rating, you can get away without paying a lot of collection items.

If you only want a better credit score to get a home loan, first thing you should do is talk to whoever will be your lender. Find out which credit bureau they will use. Most use the major three, but occasionally a lender will only use two.

Then get a copy of the credit reports they will be referencing. Have them tell you specifically what is holding you back. Make those your priority.

First thing to do(this is if you are only interested in the credit score and not the repayment obligation) is to dispute all your negative markings. The three major credit bureaus allow you to do this easily online. It can also be done by mail. The credit and collection companies have 30 days to verify your dispute. If the credit bureaus do not receive a response in 30 days, the negative marking is removed from your report. If they respond in the alloted time, the negative mark remains.

Now, keep in mind, the collection company may only respond to one or two of the credit bureaus and not the others. Then you will have the negative mark on only the reports they responded to.

If you got any negative marks removed, good, you have improved your credit score. Now try it again for the following month with whatever remaining marks you have. Try this for each month for 3-6 months. Some companies will get tired of verifying each month, some companies may let it slip through the cracks one month. Either way, you may eventually get a few negative marks removed and improve your score some.

Next is to contact any company that has you marked negative on the credit report. Negotiate with them. Tell them the truth and ask what you can do for them to remove the negative information. Some collection companies will ask for an upfront amount to settle the debt and may even remove the item from your credit report entirely. If you have a credit account still open and you have kept up with it since, they may be more willing to work with you.

Try and negotiate to get the negative mark removed all together. However some may only mark you as paid in full, but keep the collection info on your report.

Anything you have left negative on your report you have to make a decision. How soon do you want a house and will the negative info be gone before you need the home loan. A lot of collection accounts are only kept on your report for 5 years, but may be there for seven. Most everything else is there for 7 years, except bankruptcies and judgements, which are ten years, and some tax liens and child support liens, which may be up to 15 years(I think).

If you need 18 months to save up for a home loan and down payment, you may want to just wait the extra six months if you have negative items coming off in 2 years. Check your credit report for things past the five and seven year deadline, too, sometimes they forget to take things off.

One thing that is key, that should be common sense, is to make sure you keep and credit you currently have up to date and paid on time.

Also, like nephorm said, just because you got things removed from your credit report, doesn’t mean you don’t legally owe it anymore. Be aware of that. However, their level of pursuit is going to depend on your level of debt. A collection company is going to let a $1200 debt slip through the cracks and “go away” and lot easier than a $20000 debt.

Good luck.

Man, I was going to chime in, what with my wife having been a collector for 3+ years, but malonetd has covered damn near everything and in better detail than I could hope to.

Still, if you have any questions regarding negotiating the lowest payoff possible for collection agencies, PM me and I’ll get the Mrs. to respond.

I will say that when I went to buy a house in 2000, there was a 9 year old hospital bill, and an 8 year old Bally’s contract still on my credit report. These things either needed to be payed off or a letter of explanation had to be submitted to the mortgage broker as to why they were outstanding before we could get a home loan. And this was just FHA; a conventional home loan from a private bank will likely be even more scrutinizing.

[quote]malonetd wrote:
A metric butt-tonne of excellent, practical advice.[/quote]

You guys are great, I feel smarter just by hanging out here.

I’ve already taken care of the witholding situation, upping my exemptions from 1 to 5, and that boosts my monthly income by about $250, so that’s like an early raise for me. I don’t know if it’s safe to take more than that, since it all comes out of the federal taxes, and they are currently taking out less than $15 per check, as opposed to $140/check previously.

A couple of things I noticed when I checked my credit report:

-First, I was only allowed to view one report online (Equifax), and the other two made me do requests by mail or phone.

-Second, one negative item showed up twice, for the same amount and from the same agency.

-Third, my car loan didn’t show up at all, and I thought that would be a positive since I have kept it paid on time. It’s only a year and a half old, so it ticks me off it doesn’t register on the positive side. I only have two positives on my record, and one is going away next year (college loan).

I don’t know how significant those things are, they just struck me as odd, but then I obviously don’t understand the process or I would have a better score, I guess.

I’m going to start the negotiations today, and work on disputing EVERYTHING! Thanks for all the great advice guys, I really appreciate it.

Go here and read all you can twice. Go to the forum and read until you are sick. Then fix your score yourself and dont look back.

http://consumers.creditnet.com/

Hey, I was wondering - does your credit rating follow you around internationally?

I right royally stuffed up my credit rating when I was 22, from an unpaid mobile phone bill. I didn’t even know a thing about credit ratings and how badly they can affect your life.

I would’ve been clear by now I’m 29, except that I racked up a few more little defaults along the way because I stopped caring about looking after it. I’ll probably be 36 by the time I’ll be able to get a credit card or take out a loan!

I’m from Australia, and all the credit information is stored with a (bastard of a) company called “Baycorp Advantage”. Wish I could hack into their computers and wipe out their whole database!

So what I want to know is, if I immigrate to America and start a new life and career with a high income, will I also be able to start with a clean slate, credit-wise?

Or will this keep following me around like a bad smell for the rest of my life?

I’ve heard that you start with a clean slate in a new country of residence, but am not 100% sure.