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Repairing credit questions

Posted by jiggreen (My Page) on
Wed, Jan 17, 07 at 13:19

DH was out of work for over 8 months back in 2002 and our credit suffered horribly at the time, mainly due to medical bills. (we had no health insurance until 2004) We are currently in the process of trying to purchase a home and are having to use a "subprime" lender. The rate we have been quoted is 8.2%. We are looking at taking the subprime rate, but refinancing in a couple of years after intensive credit repair. We do not want to wait until after our credit repair to purchase because the area we currently live in is escalating in price and we do not want to be priced out of the market in a couple of years. Presently, DH has taken on a second job and our intention is to use the extra money to pay off old debts in order to raise our credit score. Would we be better off first paying off the smaller collection debts (quite a few of them) or putting the money towards paying off the larger debts? The smaller ones I am talking about range from $50.00 to approximately $500.00 and the larger ones are between $1,000 to $3,000.00. The total amount of old debt reflected on our credit reports is about $5600.00. (not including accounts we are current on, such as car payment, we are paying our bills now and keeping all current, we are looking to also paying off the old debts that went to collection or charge-offs) We just finished paying off $900.00 worth of a $1400.00 credit card debt, and received a letter from the credit card company stating that they were reporting to the credit bureaus that the debt was settled, but for less than the amount owed. I am kind of sorry we agreed to the settlement, I would have preferred to pay in full, but it's a relief to have that monkey off our back. Additionally, yesterday I received a letter from a collection agency for a medical bill from 1999 ( I have no clue what it's about, it doesn't even show up on my credit report). The amount owed is $112.00. I can send them a letter requesting that they send me proof that I owe the debt (name and address of the original creditor), but will that make the debt show up on my credit report again? If I owe the money, I want to pay, but I don't want to be stupid about it....I'd rather pay off the things that are hurting us now than pay off something that isn't currently hurting our credit score. Any advice anyone can give me would be surely appreciated. I'm excited to move forward into a healthy financial future but I need guidance.

Thanks a lot!
jiggreen


Follow-Up Postings:

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RE: Repairing credit questions

jiggreen
with regards to the letter you received form the collection agency
you can request proof of debt this will not make it show up on your credit report. this will only happen if you let them know it maybe your debt.
One thing I would check is the "statue of limitations" of debt for your state. I have attached a link below
If any of your old debt has not been reported as charged off I would focus on this. then work toward the old debt that is not exempt by the statue of limitations.
You might also want to check with your mortgage broker on seeing if he can find you a "No doc loan" this is also higher than if you had perfect credit but can be a lower rate than the subprime.

The settlements and the c/o accounts will remain on your credit for 7 years but it sounds as if you have the right game plan to improve things by the time you look to refinance in a few years
keep up the good work :)

Here is a link that might be useful: statue of limitations by state and debt


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RE: Repairing credit questions

Wow, 8.2% sound high. We just bought a house and were offered a loan by World Savings at a no-documents rate of 6.35% with 3 yr pre-payment penalty or 7% with no pre-pay penalty.

We ended up with a 5.875% no pre-pay loan through a private mortgage broker, but our credit history was good.

You may not be able to get that low of a rate now, but I would look around some more. I don't know if I'd count on refinancing in a few years - who knows what the interest rate will be then. Only place it can go from here is up, I think, with the historic lows it's been at recently.

Have you checked with bankrate.com? They list mortgage companies that work in your area and will sort them by different criteria.

I actually found our mortgage broker on angieslist.com - she had a terrific rating and got the job done very quickly. We closed escrow in 15 days.

Good luck!


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RE: Repairing credit questions

Please, please, please stop in your tracks right now! I think you are being taken advantage of--there is no reason to get a subprime loan. I know you are worried about the housing prices in your area getting higher, but if you delay just a little bit to give yourself time to be educated, you will get a much cheaper loan, which will save you money.

How can you get educated? Well, you need to go to a non-profit housing counseling organization. I cannot tell you how important this is. My fiancee and I did this last year, and it was the best thing we ever did.

First of all, they will analyze your debt load, and then they will advise you on how to bring down your debt in a sensible way. They'll help you figure out what to pay off and when. Your credit score will improve dramatically, making you a much better loan candidate.

When you're ready, you will take classes on home buying. You'll learn about loans, inspections, how to work with realtors, and etc. You will have personal sessions with a home buying specialist who will help you figure out how much house you can really afford. And they'll even help you find a great realtor, a loan officer, an inspector, and etc.

To sweeten the pot, let me tell you that it is very likely your non-profit will have access to special loans with very low interest rates. For instance, when we were taking the classes, our non-profit could offer loans at .5% below what we could get on the normal market. That saves you thousands and thousands of dollars! Even better, your non-profit might even have access to grant money.

How much did all of this cost us? Why, a mere $50 for materials. If we had been married at the time, it would have been just $25.

If you want to look at the website for the group we worked with, you can find it at the link below. We live in Portland, Oregon, and ours was the Portland Housing Center.

You could give them a call if you want--I bet they could tell you how to find a legitimate non-profit in your area. I called a non-profit in another state that my friend had used, and they were the ones who told me to call the Portland Housing Center.

If you want to find one on your own, I would advise you to ensure that they have the NeighborWorks America certification (NeighborWorks is a national non-profit created by Congress).

But, honestly, I would try to get a recommendation from the Portland Housing Center. I know there are lots of not-so-legitimate groups out there, and I would hate for you to get stuck with one of them.

Sorry to write such a long post! But I hope it helps. if you have any questions, please post them here and I will answer them as quickly as possible.

Here is a link that might be useful: Portland Housing Center


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RE: Repairing credit questions

Jiggreen,

First, let me tell you I know what you are going through. I've been through the bad credit nightmare and I got through it and so can you!

I agree with Myfask...before you pay off any really old bills, check the Statute of Limitations for your state.

Before you jump into a subprime loan, I would do a couple things (I know you're anxious to start the house buying process, but trust me, getting things in order now will save you time and money later on!)

1. Pull all three credit reports and first check for errors. You'd be surprised the number of errors many, many people have on their reports. I had so many that by the time I got through having them corrected, my FICO score went up 30+ points. It doesn't take that long to correct the errors; once you dispute an error, the credit agency has 30 days to prove it's accurate or they have to remove it. Most of mine were fixed within a week because you can do it online.

2. I'm all for paying your debts...if you owe it, you owe it and should pay it. However, it's possible that paying off the smaller "charge offs" listed on your credit reports will not help your FICO score at all. My brother paid off several "charge offs" when he came into some money, trying to do the right thing, and his FICO score didn't budge. HOWEVER, to get a mortgage, the bank you go through may REQUIRE you to pay them off anyway. So it may be best to do so if necessary. Also, before you pay any old debt, make sure it's really YOUR DEBT. If they can't tell you who the original owner of the debt was, then why should you pay it? Collection agencies have to prove it's your debt. And, if you make a payment on a really old debt, THEN find out it's not yours, you may be stuck. In some states, if you make a payment, you are admitting it's your debt. THE STATUTE OF LIMITATIONS THEN BEGINS ALL OVER AGAIN!

3. Don't assume you have to go through a subprime lender. Again, I've been there. I worked my way back from a bankruptcy and bad credit and was able to get a low-rate on a 30-year fixed mortgage. It's hard, but it's not impossible. If you are a first-time homebuyer, most states have a program, usually through FHA, that allows people in your position to purchase a home as long as you have a minimum credit score of about 640, it's your first home and you are within the income levels. I think you can also apply even if it's not your first home. They can also help you with downpayment assistance if you need it. I went through such a program here in CT and my rate is 4.75%! that was a couple years ago, but even now, the state program is lower than any bank on a fixed rate. I saw in your profile that you are in PA. The link below is to the program in that state and it has a question about shaky credit.

4. If a collection agency or credit agress to a payment plan and a reduce payback amount, DO NOT give them access to your checking account for automatic withdrawal! Send them a check or pay online, but do not authorize them to take the money automatically because they can (and will) take more than you authorize them to.

5. If a collector agrees to settle a debt for less than 100%, get them to put the agreement IN WRITING including a guarantee that they will remove it as bad debt on your credit report. My brother was able to do this with a couple and because he had the letter stating that it's no longer a bad debt, he was able to get it taken off the credit reports.

6. The fact that you are now current on your active accounts is good! That does help when applying for mortgage. Keep it up!!!

I wish you all the best...you can do it. Just take your time. I know you are anxious to buy now, but with a higher interest rate (and, are there more fees on top of that rate? application fees? etc.), it may not be worth jumping in the water right now.

GOOD LUCK!!! : )

Here is a link that might be useful: Pennsylvania Housing Finance Agency


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