Building Good Credit When It's Already Bad

[budgetmom]

Our credit is pretty bad, I know this even without viewing a credit report. Besides the obvious (pay off the debt), what's the best way to rebuild your credit. DH says that when you start paying off the debt that it starts showing good credit on your report. But how good is it really? I mean, it still shows that you haven't paid the bill in X amount of months/years, right? Can't the people that are approving you for a credit card or loan or job still see that it was unpaid for that amount of time, or no? I would think if they could that most places would still want to deny you because of it.

[safari]

Try to make at least minimum payments. Even though missed payments will stay on your credit report for many years (I believe it's 7 years), the longer you stay current with your payments, the higher your credit score will be. For example, if you haven't missed a payment in 2 years, your credit score will be higher then with a missed payment in the last year. It just takes time. There is no quick and easy way to fix your credit score, unfortunately.

[tinapbeana]

things like missed and late payments can stick around for as long as the company continues to report it

not saying this is you, but take, oh, say, ME for example who forgot about a very small CC i had in college. long story, but it happened. anyways, that was in 1999. now, 7 years later, and the company has just this year reported the account again to the agencies. since they reported it this year, i have to wait ANOTHER 7 years for it to fall off, b/c the 7 yr rule applies to the last time the account was reported.

i'm guessing the best way for you to fix your credit is alot like i'm trying to fix mine. 1. keep current on everything open 2. pay off anything that is closed and still lingering 3. start paying down the open credit you have.

step 1 keeps you from having the same problem in the future. step 2 gets those old accounts done with, they get reported as closed and paid and the company doesn't report it to the agencies anymore and the 7 yr clock can finally start. step 3 is where your credit will start to look better, because not only are all your accounts in good standing, you're "Paying as Agreed", and possibly bringing your debt-to-income ratio down to an acceptable level.

[budgetmom]

I know I have some things that have been reported in the past (sad, but true) that are maybe 12 years old. I have not recieved a copy of my reports yet, but the last one I recieved (about 4 yrs ago) didn't have some of those old debts listed on them. Does that mean that they are no longer reporting the debt? Can they begin again at any time?

[safari]

If you are past due, the company is going to continue reporting you to the credit agencies. The 7 years time limit does not apply here if your account is still open and you defaulted on your payments. You'll have to pay whatever is past due and then continue making payments on time. Only 7 years after that your credit report will become clear.

[tinapbeana]

Originally Posted by budgetmom

I know I have some things that have been reported in the past (sad, but true) that are maybe 12 years old. I have not recieved a copy of my reports yet, but the last one I recieved (about 4 yrs ago) didn't have some of those old debts listed on them. Does that mean that they are no longer reporting the debt? Can they begin again at any time?

if they take action on the acct, such as selling the debt to a collection agency, then the item gets reported again.

[autoxer]

Originally Posted by budgetmom

I know I have some things that have been reported in the past (sad, but true) that are maybe 12 years old. I have not recieved a copy of my reports yet, but the last one I recieved (about 4 yrs ago) didn't have some of those old debts listed on them. Does that mean that they are no longer reporting the debt? Can they begin again at any time?

Be careful with those old debts. If you contact any of those collection agencies or make a payment now, it brings those debts current, so they will haunt you for another 7 years. If those debts have already fallen off your credit reports, then let bygones be bygones. While rebuilding your credit, focus on your current open accounts. Keeping your current accounts current is the best way to build good credit. Unsecured revolving accounts are much more effective in boosting your score than secured lines of credit. A good record of paying on time & paying down your balances to lower your utilization will boost your score. Some of the negatives will stay on your report for a while, but don't worry too much, lenders know stuff happens. If a lender sees that you have some negatives, but also that you have been current for a while & your balances aren't too high, then they will be more likely to extend you credit.

Here is a booklet called, "Understanding Your FICO Score."

If you have more specific credit rebuilding questions, the folks over at www.creditboards.com understand the system very well.

[sakigt]

Be patient! It WILL get better, but only by making payments on time consistently for many years.

My mom was terrified of her credit score, even though she had been making the bare minimum payments on each of her debts. I finally had to go to an online website, type in her information and pay for a report with my own money so she could see it. She was very happy with what she saw

[vsjhoc]

Originally Posted by tinapbeana

if they take action on the acct, such as selling the debt to a collection agency, then the item gets reported again.

Under the law, the seven-year clock (actually it's 7.5 years) does not start over again when your debt gets sold to another collection agency. However, this doesn't stop the collection agencies from illegally re-aging the debt. If they do, you can dispute the debt as being outdated.

BTW, the credit bureaus are not required to keep bad info on your credit file for 7 yrs. The 7.5 years is the maximum time they are legally allowed to keep it there before they must delete it.

The clock starts ticking from the first date you missed a payment that leads to the charge- off (referred to as the "date of first delinquency"). So if you pay in March, miss April's payment, miss May's payment, pay June, miss July and never pay again, the seven years starts from July. As Autoxer notes, if you make a payment six years later, you are starting the whole seven-year period all over again.

[budgetmom]

If this is true than I am in heaven right now! But, I've been told that banks and other financial institutions can search back as far as 20 yrs. or more to get an assessment on your credit history. How does that work if credit bureaus are technically (legally) not supposed to be able to report after 7.5 years? Or, was someone just trying to blow smoke up my ***? Don't even know where I heard it from, maybe a collection agent, who knows...

[vsjhoc]

Originally Posted by budgetmom

If this is true than I am in heaven right now! But, I've been told that banks and other financial institutions can search back as far as 20 yrs. or more to get an assessment on your credit history. How does that work if credit bureaus are technically (legally) not supposed to be able to report after 7.5 years? Or, was someone just trying to blow smoke up my ***? Don't even know where I heard it from, maybe a collection agent, who knows...

The credit bureaus don't "report." It's the banks, car finance companies, etc. who report the info about you to the credit bureaus. The credit bureaus store all this info and then assemble it into a report on the day that someone requests one. The "good" stuff (e.g., accounts you have paid on time) stays on your credit report indefinitely. The "bad" or "ugly" stuff (late payments, collections) has to be removed by the credit bureaus after 7.5 years max (10 yrs. for bankruptcy). Hope this helps.

[shelbylovesmelby]

Originally Posted by budgetmom

I know I have some things that have been reported in the past (sad, but true) that are maybe 12 years old. I have not recieved a copy of my reports yet, but the last one I recieved (about 4 yrs ago) didn't have some of those old debts listed on them. Does that mean that they are no longer reporting the debt? Can they begin again at any time?

I agree. I would say to start paying off some of those debts you need to get your budget established. Then sort out the debt from smallest amts to highest amounts. Pay the minimums on all your current debt & focus on paying off the smaller amounts with any extra funds on the ones you are behind on or went to collections.

So like if you owe $75 to the local hospital, call make payment arangements of say $25 a mo til that puppy is gone. Then work to the next one. When I was doing lending you can't imagine how many people had lil collections like that & never thought about paying them off ect.

Whatever you pay off, especailly if it was behind make sure you get a letter saying it's paid in full to keep w/ your things so that incase they don't update your file you have the paperwork as proof of payment.

[shelbylovesmelby]

Oh & if they haven't sent you to collections on a particular debt & it's been a # of years you may of been "written off" their books as a bad debt. Once in a great blue moon someone would call and say I saw a collection for this amt for a checking acct I had years ago... can I rectify this? & sometimes you can & just make sure you get that letter saying it's paid in full ect.

[vishenda]

Originally Posted by safari

Try to make at least minimum payments. Even though missed payments will stay on your credit report for many years (I believe it's 7 years), the longer you stay current with your payments, the higher your credit score will be. For example, if you haven't missed a payment in 2 years, your credit score will be higher then with a missed payment in the last year. It just takes time. There is no quick and easy way to fix your credit score, unfortunately.

I agree!

[shepav]

Here's the formula for how they determine your credit score (I'm a credit counselor, so I counsel people who have just filed for bankruptcy):

35% of your credit score is your payment history. Best way to rebuild credit is to pay your bills on time!
30% of score is the amount of debt you have.
15% of score is the length of credit history.
10% is any new credit that you might have (recent credit inquiries, new credit).
10% the types of credit you have (mixture is better, as opposed to just revolving credit lines or credit cards).

Hope this helps!

[Elgin526]

Before we were married, my DH had a terrible habbit of paying his bills late. When we got married I took over the finances and all of his accounts have been paid on time since. It's been just over a year and I think his score must be improving, because he is now getting credit card offers in the mail! He didn't used to get any at all! Even though those accounts will still note late payments in the past, the consistant on-time payments since then has helped him out. The more distant the problem, the less it counts towards your score.

Just bringing all of your accounts up to date and then paying all of them on time (even if just the minimum due) can really improve your score. Beyond that, paying down your debt is the next big step in bringing your score up. It's also important to get a copy of all three of your reports, there could be incorrect information on them. I once had a $4000 bad debt on my report that belonged to someone else. I just had to dispute it, turns out the SS # got inverted and it got put on my report. The reports will also show all the bad stuff that really IS yours, and you can start to make it right.

[vishenda]

Save your money and do not pay an agency to help you. You can do this yourself.

[nanamom]

We applied for a mortgage this year and in the process saw our credit scores for the first time in a couple years. 4 years ago I applied for a car loan and was given a rate of 14 %. (ouch) The car will be paid off in 3 months. When my DH and I married he was in debt for 60,000. Most of it was minimum payments only and would take our lifetime to pay off, if not more. Shortly after that he got laid off. Our credit rating plummetted as we then couldn't even make the minimum payments. Some of it went to charge off and some of it was paid from the retirement funds we cashed in. It has been a long hard 4 years but we now have an A plus rating again. Consistent payments work. We hated to lose the retirement money but they were going to force us into bankruptcy and we would lose them anyway. This way we didn't have to pay an attorney fee as well.