Whaddya mean I owe you 700 bucks?!

March 20, 2007 5:53 PM

Options for (re)building my credit...how best to re-build my credit history with an eye towards home ownership...

After a period of credit irresponsibility in my youth, I am trying to rebuild my credit. I have a time table of a few years to accomplish this.

I have the opportunity to take out a small loan (under 4 grand, but at a positively usurious rate of 29.47%) to add a positive entry to my credit report.

My question to the hive mind is, is there a better way to do this? I have positive entries (paid off car loan, second car loan, charge cards that are current), but I can't seem to shake the negative ones.

For what it's worth, my score hovers somewhere around 590 (depending on which agency you ask), and I have the income to support taking out a loan at a loss to help build this.

posted by richter_x to work & money (13 answers total)

A few years? Pay *all* your bills on time.
posted by Listener at 5:59 PM on March 20, 2007

Second paying all of your bills on time. I don't see how adding a personal loan to your credit report would help you any more than using, then paying off, your existing credit cards. You need to show that the irresponsibility is in the past.
posted by cabingirl at 6:16 PM on March 20, 2007

I don't see that expensive loan helping your credit.

To get a house find one for sale by owner. Offer a lease/option to buy. With some rent payment going toward the downpayment. Then exercise the option. Or buy a house with owner financing. Look for someone that is wanting to retire as they can use that monthly payment to help their living expenses.

Don't take that terrible loan you mention. Not a smart move I don't think.

As the others say.. pay all your bills on time.
posted by JayRwv at 6:23 PM on March 20, 2007

Don't take that crazy loan. It won't help very much and you'll lose money.

Shaking the negative items is generally just a matter of time. How old are they? If they're a few years old already, you should see them start to drop off over the next few years as they reach the magical 7-year mark. I'm presuming they're things like collections and chargeoffs, and getting those off your report will probably help you more than anything.

Other than that, yeah, just pay your credit card bills on time every month and don't run up your balances again. If you have any outstanding balances now, work on paying them off completely. That combined with the negative stuff falling off on its own should help your score quite a bit over the next few years.
posted by boomchicka at 6:24 PM on March 20, 2007

One item of positive credit (which that loan may or may not provide) will not undo years of financial irresponsibility, but one or two missed bill payments certainly will.

Your best way of fixing your credit, aside from little things like paying your bills on time and not overspending your way to bankruptcy, is to get a joint account with someone with good credit. Their good credit score can help buoy your sagging one.
posted by Dave Faris at 6:46 PM on March 20, 2007

but one or two missed bill payments certainly will...

... Er, affect your score, negatively.
posted by Dave Faris at 6:48 PM on March 20, 2007

Thanks to everyone for their input so far.

listener/cabingirl - I do pay my bills on time. When I bought my car, Toyota did not care one whit that I paid my power bill on time every month. They were more consumed by the charge off I had 5 years ago.

Boomchicka - I wish they would start falling away. These items keep getting recycled...I have something from AT&T from 9 years ago that keeps re-appearing. Everything i've tried (short of paying them again) will not work.
posted by richter_x at 6:58 PM on March 20, 2007

1. Are there are negative (open) collections on your record? If so, question them with the bureaus if necessary and otherwise, pay them off. (No doubt that this will open up a can of worms as to whether or not the charge will fall off your credit report faster if you simply leave it unpaid, but for this exercise, we'll just *do the right thing.*)

2. Are there any open accounts with a balance? If so, pay them off.

3. You're probably at least a year away from buying a new home (or at least I'd think so, since subprime credit is tighter than a virgin on prom night), so spend this time saving and allowing your credit report to heal itself (time heals all credit wounds, after all).

4. Then, after a year of clean credit, open up said loan and pay it off. You're right to state that having a loan on your report is good. It shows credit diversity. But why let them charge you 30% now when they can charge you 10% next year when you've repaired yourself as much as possible?

5. ???

6. Profit.
posted by SeizeTheDay at 7:02 PM on March 20, 2007

As far as the AT&T thing is concerned, closed negative items on your credit report must be taken off your report by the bureaus. Write them registered letters stating that the time for reporting (7 years) has past. Quote the Fair Credit Reporting Act (FCRA). Here is the relevant text of the law (I'm not a lawyer, read the ENTIRE document yourself):

§ 605. Requirements relating to information contained in consumer reports [15 U.S.C. §1681c]
(a) Information excluded from consumer reports. Except as authorized under subsection (b) of this section, no consumer reporting agency may make any consumer report containing any of the following items of information:

(1) Cases under title 11 [United States Code] or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years.

(2) Civil suits, civil judgments, and records of arrest that from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period.

(3) Paid tax liens which, from date of payment, antedate the report by more than seven years.

(4) Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.

(5) Any other adverse item of information, other than records of convictions of crimes which antedates the report by more than seven years.

(6)The name, address, and telephone number of any medical information furnisher that has notified the agency of its status, unless-
(A) such name, address, and telephone number are restricted or reported using codes that do not identify, or provide information sufficient to infer, the specific provider or the nature of such services, products, or devices to a person other than the consumer; or
(B) the report is being provided to an insurance company for a purpose relating to engaging in the business of insurance other than property and casualty insurance.
posted by SeizeTheDay at 7:09 PM on March 20, 2007

Save up as much cash as you possibly can. Take a loan out for the amount of cash you were able to amass. Make about three to four payments on the loan you have taken then pay it off in full. This will boost your credit score. The amount of boost will be tied to the amount of the loan you were able to pay off.
posted by bkeene12 at 7:10 PM on March 20, 2007

OK it sounds like you have some items to dispute then. SeizeTheDay's advice is good; follow that as many times as you have to to start getting stuff taken off your report.

Also check out www.creditboards.com. There will almost certainly be some posts that address disputing lingering bad stuff.
posted by boomchicka at 6:01 AM on March 21, 2007

Yes, make the credit agencies take old items off the report. No, do not take the high-interest loan. Taking such a loan might even be considered a bad mark on your credit ("What did he have to pay off so fast that he was willing to take a 30% interest loan??")

Pay off what needs to be paid off, and save your extra money towards a downpayment. Having 20% to put down and low outstanding balances will do more for you than you can know. Besides, if the "The sky is falling and all the sub-prime mortgages are failing and the housing bubble will surely burst any minute now!!!" guys are even 10% right, waiting a year or three to buy won't hurt you in the long run.
posted by ilsa at 9:43 AM on March 21, 2007

Yeah, depending on your capacity for pain you can peruse the FlyingIFR agressive credit repair method over at credit boards. Shame art of credit is defunct, but you should be able to find help over there.

I wouldn't touch creating new credit until you have spent a few months pulling your reports and disputing the existing baddies. Aside from the direct costs of that there's also the matter that for maximum benefit you want to have around a 30% utilization rate, so that 4k loan when it's only 10% paid off has some negative impact.
posted by phearlez at 10:26 AM on March 21, 2007