Repairing credit

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    Jan 18, 2009 11:27 PM GMT
    I honestly don't know who to talk to about this, so I thought I'd consult the wisdom of the masses.

    Long story short, due to unwise financial decisions I made with my ex when we were together, specifically in the realm of credit cards and loans and trusting him with the responsibility for them*, my credit score is nothing short of fucked. The silver lining is that one doesn't need to have a decent credit score for school loans, but I can't refinance my car for a lower interest rate, can't get the interest rate on my credit cards down (most of which I keep perpetually paid off, but one's been a bugbear), and doubt I'd be able to get a home loan any time in the near future. Not that I'm planning on getting a home just yet, but I'd like that option before I'm 40.

    So how do I go about fixing this? All things that are in my name alone are in decent standing; there is one delinquent account that he neglected to pay off, even after I gave him half the money to do so, so I can start the 7-year countdown after I take care of it on Wednesday. My score has me listed as "financial toxin", so I can't do the trick where you get a small loan, stash it in savings, and then pay it all back on the due date of the next billing cycle. I think there's an error on two of the bureaus regarding my place of employment (which I swore I corrected months ago), but the overall history seems to be accurate.

    I know that the biggest factors are just paying anything/everything on time and, well, just waiting. Are there steps I can take to help speed the process along, or am I just generally fucked for the time being?

    RANT: Why don't they teach this crap in high school economics? Thanks, insufficient standardized education requirements!

    *Side note, Re: Barebacking thread. Amusing that I think a partner can eventually be trusted for unprotected sex, but I don't think I'll ever do a joint checking, savings, loan or credit card ever again.
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    Jan 19, 2009 1:21 AM GMT
    Have you talked to your bank about a loan that consolidates your debts with a lower interest rate? I believe there are also companies that specialize in this field.

    Don't beat yourself up about having trouble handling your finances. Some of the smartest people I have ever met in my life, were hopeless at personal finances.

    Why doesn't the education system teach such practical, useful knowledge as personal finances? I have wondered about that for years. Most people would be better learning that then Algebra!
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    Jan 19, 2009 3:10 AM GMT
    First of all, take care of your joint account. Contact the company you owe money to and explain the situation. You might be able to work out a deal where you can pay your share and get your name removed from the account. Then they can go after your ex for the remainder.

    Do not contact a credit counseling or debt consolidation company. These are just debt collectors in disguise. And it will go on your credit history as a negative.

    The rest is just a waiting game. Continue to make your monthly payments on time. Pay a little more whenever possible. Don't buy stuff you don't need. Eventually you'll get your debt down, and your credit score will improve.
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    Jan 19, 2009 3:28 AM GMT
    Gosh, where to begin. I have been in this same boat and was pissed! It's been a long and tedious process to get my credit history back on track but it can be done. The main thing you MUST have is patience and a strict budget/plan... AND STICK TO IT!

    Here are the factors that make up your credit score:
    - 35 percent - An individual's history of making credit payments on time
    - 30 percent - The total amount of debt being carried along with available credit
    - 15 percent - The age of an individual's open credit lines (more history is better)
    - 10 percent - The frequency with which someone applies for new credit
    - 10 percent - Wild card factors such as the types of credit lines

    Animan's suggestion for paying down/off credit card debt is on point. Pay the one with the highest APR first; however, maintain paying all the other cards with their minimum balance. And, if can... pay a little more on the highest APR card, even if it's $10 extra. Once that's paid off, take that payment and put it on the next highest APR card. Sit down and figure out where all your cards rate. NEVER be late! Set reminders, if needed.

    Only consider a consolidation loan if you KNOW you will get approved. Being declined for a Consol loan reflects poorly as banks and loaners will see you've been disapproved. Stop trying to get more credit. This too reflects poorly on your credit report. Cut up all the credit card mailings you're getting and delete the e-mails!

    Don't close any credit cards or loan accounts. Once you get these paid off, simply having credit is a good thing. Remember, credit utilization should be 30 precent or lower on your credit cards. Which means, if you have a $5,000 limit, your balance should be less than $1,500.

    Credit report discrepancies - dispute them! Just last week, I disputed 4 erroneous hits on my credit report. My partner's name was on my report twice (we live at the same address and have the same first name,) along with 2 of his delinquent accounts - which was obviously hurting my score. Call and talk to an agent at the reporting agency. While I was on the call, they immediately removed the discrepancies.

    Continue to monitor your credit report. Pull it twice a year, if you can. You get a free one every 12 months. But while you're trying to rebuild, I would suggest getting another one mid-year, if you can, to check for accuracy.

    Most of all, pinch and squeeze right now. Tighten the purse strings. Eat peanut butter sandwiches. IT WILL PAY OFF in the end!

    And concentrate... work on paying off the bills and not on saving money. At least not immediately. Not until you have a good amount of debt paid off. (However, if you are currently invested in 401K or IRA... leave it alone and continue contributing whatever it is you are contributing - later you can increase this.)

    I know it sucks and it's not going to happen overnight, but hang in there - you can fix it. Hope this helps.
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    Jan 19, 2009 3:56 AM GMT
    Hard work will help. You can hire people to do this for you, but its better for you to do it because it makes you aware of what's going on. If followed properly, this method works 100% of the time.

    1) Get your credit report from all three credit bureaus. Go to this site. The rest are pay sites and try to get you to buy other shit, like Note: most people have a fraud section on their report nowadays. Don't be too alarmed... but one thing to consider is that negative reports can come up because of the address you live at, and does not reflect in your credit score (yet). It's there for your benefit to help you identify possible fraud.

    2) Write a generic letter challenging everything that may be in the "negative" section on your credit report, with a copy of that report, sent to each of the credit bureaus. Do not challenge what is in the good section - you want the good stuff!!! It will force them to verify with the creditor the validity of the debt in your name and SSN. Anything not valid or over 7 years will come off (except any bankruptcy which can stay on for 10 years). Unless one is really good at their finances and monitors their credit report, everyone should challenge what's on their report, whether you think it is valid or not. Anything that drops off will help your score.

    3) For debts you know are valid, figure out how much you really can pay per month, and divvy it up proportionally to the debt to pay it off in the quickest amount of time. This requires you to be realistic about your finances. Anything above and beyond basic living requirements should go to pay off debt and even small savings. $20 a week adds up after six months... it's a couple pairs of new jeans and some shoes... or a small vacation, for instance. Make a schedule in a spreadsheet, or your personal finance software like Quicken. If the payment you make is less than the minimum amount, send a letter along with your payment with your payment schedule. Then, pay these bills on time every month. They should be the very first thing you do when you get paid.

    4) Live within your means always. When things get better, you can increase your discretionary budget. In six months, your score will show improvement. In one year, you should be able to purchase most things, some at a higher interest rate, but better.

    5) It is unlikely you will be able to finance a house without a big chunk of money to put down like 20% - maybe less in some cases. If you are a veteran and do a VA loan, I think that is still as low as 3% down - if you are a vet, this year is a good time to buy a house. The market should bottom out this year - and sellers are eager to do VA loans because the loan is guaranteed!
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    Jan 19, 2009 6:21 AM GMT
    Also, going forward...I recommend Suze Orman's new book-Suze Orman's 2009 Action plan. I saw her on Oprah last week in which she outlined the plan. Here are a few of the excepts from the show:
    1. Should always pay more than the minimum payment due amount, even is it is just $5 or $10 over.
    2. NEVER close credit card accounts. Put them away somewhere. Closing credit card accounts hurts your credit rating and brings your FICO score down.
    3. Pay off highest APR 1st and go from there.
    4. Do not open a savings account UNTIL your debt is paid off. Once you have paid your debt off, then search for the highest yielding APR of a savings account.
    5. She also recommends having at any given point at least 8 months of your household expenses (what is costs you each month to live) in savings. On average in the economy we are in now, it can take up to 8 months to find a job. (I know this. I have been looking since September).

    Best of luck to you. The book is $9.99, btw.
    Side note-Suze Orman is a lesbian. So it is worth checking out. I have the book myself.
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    Jan 19, 2009 6:35 AM GMT
    So far, you've got some pretty good advice. I used to work for a Credit Bureau, and have seen all kinds of attempts to avoid what your creditors will be reporting - Yes, it's them, not the Bureau. They download your info from your creditor, so don't go calling my former co-workers bitching about it. SORRY!!!!!!! Some pent up anger there. Anyways, my advice:

    1. Start to live on cash and cash only. If you cant, then you need to get a second job.

    2. Analyze every single thing in your report. Know what you owe, when you'll owe it, and keep track of who you owe it to. If you start to see your debts going to Collection companies, this can be difficult. They buy and sell your debt non-stop and some may forget to report the balances as zero once they are sold. You don't need anything else against you.

    3. Seek a legitimate company to renegotiate your interest rates and consolidate your debt if necessary. This can hurt you, but not anymore than what you may have to deal with. Do this if you KNOW you cant make the payments and only with a non-profit company.

    4. Pay as much as possible, not the minimums if you have the extra cash.

    5. If you're going to be disputing or negotiating, keep as much of it as possible in writing. Phone conversations will mean didly except to get the ball rolling on solving the issues.

    6. MOST IMPORTANT, understand that you will be dealing with this for the next 7 years and there is NO QUICK FIX. If you can maintain your payments on time ASAP, and are able to lower your debt, then you'll be fine. If you hold off finding a solution, you'll be dealing with this longer.

    A note: There are hundreds, if not thousands, of scoring models so don't do the "why are they different?" thing. Each company can choose or create their own scoring system. FICO is a standard so if you're going to keep watch, go with that instead of confusing yourself with the hundred others you'll run into.

    Good Luck!
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    Jan 19, 2009 6:42 AM GMT
    Good words. Great post. My post plan has taken folks from ~580 and ~620 to ~720 and ~775. In one year.

    There are no quick fixes.

    Anyone got better plans we want to hear!!!
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    Jan 19, 2009 7:20 AM GMT
    I got Suze's book; it was actually available as a free download for a week on Oprah's website, so I just need to print it out and read it now.

    Some clarifying data:
    My financial situation as-is is livable. I'm not living on credit, and the card only comes out in some emergency situations, like when I had an allergic reaction to some eye drops and had to make an immediate trip to the optometrist. Lemme tell ya, it's freaky when you've got only one eye dilated! As a response, I try to "penalize" myself by paying what I just spent, plus about $25 (if there's a greater balance due), but that's not always possible. The payments I do owe are manageable, it's just that it takes large payments to make dents as the interest is so high at the moment. Fortunately, this means I can probably avoid going to debt consolidation.

    I appreciate the advice about not closing accounts, but this one shared card is getting shut down. It's just to BestBuy, and I already have one just in my name anyways. I'll take the advice and keep all the rest open, though.

    I've already got a savings account, but I"ll take the advice about contributing to it. I've got Keep the Change set up, so I guess I'll just leave it with that for the time being.

    I've never monitored my credit record and score in the past very closely (otherwise I wouldn't be in this mess), so assuming I'm constantly on time with payments, no new debt, etc., about how fast should it be repairing itself from "abysmal" to "decent"? I know my rating's not gonna be in the "good" region for a while, and I know there's limited information here, so I'm just wondering about a rough estimate. Going from 580 to 720 in a year seems practically rocket speed, especially since I've been struggling for at least a good year now (NEVER doing joint finances again; EVER) and just when I thought I was doing better I think my scores dropped by that much in a matter of months.
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    Jan 19, 2009 7:26 AM GMT
    It's not rocket speed. It's doing it. Suze is great, but she would tell ya! Don't differ from the plan.
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    Jan 19, 2009 7:28 AM GMT
    Actually, I think Suze would yell at me. And she's scary when she yells....
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    Jan 19, 2009 7:33 AM GMT
    Oh Suze... sincerely, consider what I wrote because it works. It could do you good.