Length of time to repair credit score

[Bob B.]

I went through about a five month period of falling behind on scheduled payments. I'm receiving some rental income now, and am now current on all bills, and should remain so for as long as the renter keeps sending a check. I'm not sure of what my credit score was prior to falling behind, but would guess it was 700+. It is probably below 630 now. Can anybody tell me how many months it takes for a credit score to be repaired?

Thanks

[disneysteve]

Your credit score is a moving target. It changes daily. With each passing day, week and month, assuming you continue to pay your bills on time and do everything else correctly, your score will gradually get back to where it was.

Why do you care about your score at this point? Are you planning to take on new debt for some reason?

[Bob B.]

Why do you care about your score at this point? Are you planning to take on new debt for some reason?

Good Question - The reason I care is that I want to consolidate a couple of credit cards. One has a balance of $3,500 at 16.99% and the other has a balance of $9,700 at 12.90%. I can borrow against my retirement fund ($70,000) at 8.00% if my credit score is at least 630. The higher the credit score, the lower the interest.

[disneysteve]

I can borrow against my retirement fund ($70,000) at 8.00% if my credit score is at least 630.

Never, ever borrow from your retirement plan. Maybe for some life-threatening issue like medical care, but nothing short of that. To pay credit cards is not a good enough reason IMO.

When your credit score improves, just call and ask for a lower rate. If they say no, apply for a new card with a lower rate and transfer the balance.

In the mean time, how about posting your income and expenses here for review? I guarantee you'll get some great advice on how to cut your costs and direct more money toward debt repayment immediately.

[Bob B.]

Never, ever borrow from your retirement plan.

Just for clarification reasons - I'm not planning to borrow from my retirement plan. I'm planning to borrow against my retirement plan. I'd like to apply for a loan from a commercial lender - using my retirement plan as collateral.

At 8% interest over five years that's $270 per month. We're paying more than $300 per month on the two as it is. Plus, they'll be paid off in five years, as opposed to 7-10 years at higher interest.

[disneysteve]

I'm not planning to borrow from my retirement plan. I'm planning to borrow against my retirement plan. I'd like to apply for a loan from a commercial lender - using my retirement plan as collateral.

So you want to turn unsecured debt into secured debt. Why would you want to do that?

If you can qualify for the 8% private loan, you most likely can qualify for a better rate on a credit card just as well. As I said above:

When your credit score improves, just call and ask for a lower rate. If they say no, apply for a new card with a lower rate and transfer the balance.

[Bob B.]

So you want to turn unsecured debt into secured debt. Why would you want to do that?

I appreciate your advice, and you've given me a lot to think about. The reason I would want to turn unsecured debt into secured debt is to save money over the long-term. I don't think I can get a credit card at an 8% rate. Ten or 11% is what I'm guessing. Even at 9.5%, that would mean $756 more in interest over the life of the loan. At 11%, that would mean $1520 more in interest as compared to the 8% secured option.

[Bob B.]

With each passing day, week and month, assuming you continue to pay your bills on time and do everything else correctly, your score will gradually get back to where it was.

Again, I appreciate the conversation with disneysteve. What I really would like a firmer answer on is: does anybody know how long it takes to improve a credit score from sub 630 to 650+?

To answer a previous question from disneysteve, we have cut our budget to the bare bones. No satellite TV, no garbage service, my wife cuts the kids hair, no car payments (each of our cars have 130,000 plus miles). We probably do eat out too much (once or twice a week), we do have internet service, we do each have a cell phone (no land line) but that's about all that's left.

We are saddled with debt from poor decisions in the past. I want to get that debt paid off as quickly as possible at as low a rate as possible. Borrowing from a commercial lender with my retirement fund as collateral (that's the only asset we have with any equity) seems like the best bet to pay off the debt as quickly and cheaply as possible.

So: does anybody know how long it takes to improve a credit score from sub 630 to 650+?

[JoshuaHeckathorn]

What I really would like a firmer answer on is: does anybody know how long it takes to improve a credit score from sub 630 to 650+?

No one can give you a firm answer to this question because the FICO credit-scoring model incorporates too many different moving variables that are specific to your personal credit history, most of which we don't know based upon the information you've provided. What I can tell you is that all else equal, paying your bills on time for just a month alone could raise your FICO Score 20 points. And if you're able to reduce your credit utilization along the way, your chances of getting that extra 20 points or so will be even higher.

[kork13]

Bob B.,

In answer to your question, there's really no way to estimate it, because there are too many factors. How long you've had credit established, your past history, how much damage was done during the recent period of problems, and that's just the beginning. It could be as little as 6 months, or it could be as much as 2 years or more.

That said, however..... Sometimes there are people who post a question on here, and in the course of the discussion, we all realize there's a more important issue at hand. I really think you're in that situation.

I think DisneySteve has a good point in recommending other options. Moving unsecured debt to a secured debt can be a very risky venture. What if you hit another snag? What if your renter stops paying? What are your options there? How long can you hold on until you no longer can make payments on this new, secured loan? How long after that until they seize your retirement accounts to settle the debt? This is just like a few years ago when people who used their homes as an ATM (taking out huge home equity loans against their homes), then found they could not make the loan payments when things got rough. Now, a quarter (or more?) of the country's home-owners are either in foreclosure or close to it. In your case, you wouldn't lose your home, you'd lose your retirement savings, forcing you to start from scratch. Are you realistically able to do that? Just guessing based on how tight you say things are, it sounds like it would be extremely difficult for you.

I would strongly recommend looking at other options, because they ARE out there! Check out your local credit unions for unsecured, debt consolidation loan offerings. You might be surprised to find that you can potentially get an unsecured loan for a lower rate even than this secured loan you're considering. Another good option is, as DS mentioned, check out credit card offers. Many offer VERY low-rate balance transfers, often ranging from 0%-5%. All of these unsecured options would be better, because you won't lose your assets (home, retirement, etc) if you become unable to make the payments. I know that nobody ever plans for that to happen, but you need to be prepared for the worst in case it does. Doing this with an unsecured loan protects you and your family's future.

By no means do I intend to offend or patronize, but rather offer better options for you to consider. Please look around and try to find some of the safer options available to you. I think you might be surprised at what's out there if you look for it.

[minnie1928]

I agree with DisneySteve and Kork on this one...I wouldn't move the debt to a loan secured by your retirement. Also, another thought is perhaps you will be more motivated to pay off the debt sooner if you leave it on the higher rate card? I know some people move debt to a lower rate vehicle and then get comfortable with the breathing room, but don't apply the new found money to the debt. The best way to pay less interest is to pay the debt off faster than scheduled...that formula works 100% of the time.

As far as your score goes, it will improve over time but there's no exact formula for you to follow. As you make your payments on time AND as you pay down your credit card debt, they will help your score move upward.

[disneysteve]

This is just like a few years ago when people who used their homes as an ATM (taking out huge home equity loans against their homes), then found they could not make the loan payments when things got rough.

I hadn't thought of that, and it leads to another thought. One reason why so many homeowners got into trouble was that the value of their home dropped after they borrowed against the inflated value. What happens if you borrow against your retirement account and the stock market takes another big dive, dropping 30% or 40%, like it did a couple of years ago?

[Seeker]

I went through about a five month period of falling behind on scheduled payments. I'm receiving some rental income now, and am now current on all bills, and should remain so for as long as the renter keeps sending a check. I'm not sure of what my credit score was prior to falling behind, but would guess it was 700+. It is probably below 630 now. Can anybody tell me how many months it takes for a credit score to be repaired?

Thanks

Nobody can tell you that... you actually would be better advised to obtain your credit reports and check for any errors remaining. Your Access to Free Credit Reports

You can do what this article describes to get a better estimate of your current "FICO" when errors are corrected. » How To Get A Free FICO Credit Score


1)
The FICO "score" is just number that varies greatly from each of the three major Credit Reporting Agencies. One of the reasons for these varying scores, is because most companies report their data to one of the three CRAs; so until the data is shared, in reality each of us has three FICO scores that are a moving target as we incurr bills, pay them and transact daily.

Beacon FICO for Equifax
Empirica FICO for Transunion
and what many people think of as Fair Issac's FICO is Emperian.

The Fair Isaac Company put together an algorhythm for determining credit worthiness and the bureaus each use that to give an overall number. But again, information varies, the data is constantly moving and time never stops.

2)
Loaning companies don't just look at your score to determine what to do.... they look at the whole of your history and use their own criteria as to whether or not to take a risk on loaning you dollars given your facts of FICO and the facts they get from when you apply for a loan with them (your income, your stability in job -- history, they may ask for references, cosigners, etc.).

Whether a CC company accepts or denies is totally up to them. They will provide a reason, and you may or may not have the right to a free credit report from one of the three companies at that point.

Again, first see what's on your CRA listing. Correct errors. You may or may not choose to get your FICO floating number. And then lastly, apply. Know your rights.

3)
The points others made about borrowing against retirement are valid. You yourself said in your OP

am now current on all bills, and should remain so for as long as the renter keeps sending a check.

You depend on a renter to keep yourself in the positive. That's not a good situation to be borrowing with.

You may be up-to-date with your bills; but honestly.... you sound a bit over-extended.

[Bob B.]

Thanks all for your input. My wife and I have started to hunt for credit card offers.

[disneysteve]

Thanks all for your input. My wife and I have started to hunt for credit card offers.

If you don't like what you are finding right now, wait a few months and check again. As your credit score improves, your offers should improve as well. Just keep in mind that if potential card issuers are checking your credit each time you apply, that can have a negative effect on your score. So it might be best to wait until your score is better before looking for better deals.

Also, your first step shouldn't be applying for a new card. Your first step should be calling your existing cards and requesting lower rates. Speak to a supervisor as the drone who answers the phone isn't authorized to make those decisions. If you can point out that your FICO has climbed form X to Y and that's why you feel you now qualify for a better rate, that can help. If they say no, tell them that you have received offers from other companies for a much better rate and you'll transfer the balance if you need to but you'd prefer to stay where you are if they are willing to work with you.