Help me fix my credit score.
August 25, 2008 6:03 AM   Subscribe

Should I dispute the adverse item on my credit report or just pay it off? Also, will a balance transfer help or hurt me?

Last July I moved and closed my account with my old cable company. I returned the equipment and paid the balance. I got a notice saying I owed them $69 but I figured my check had crossed in the mail. I called them and the rep said my account was at $0. So, I forgot about it and ignored the mail they sent me. The cable company itself never called me to get the money. A collection company started leaving messages for me about a month after closing my account, but they didn't say for whom they worked and I never called them back. This company is also notorious for calling the wrong person and as they never said my name, I assumed they must be calling the wrong number. Now the $69 is on my credit report and I'm pissed because 1) I was never told it was going to collections and 2) I don't really owe them the money (unfortunately I have no proof of returning the equipment). I don't have the energy for a drawn-out battle with them - I just want it off my credit report. Should I just pay them or won't it matter?

Another thing hurting me on my score is that I have two credit cards that are maxed out. The interest rates are absolutely obnoxious (28% and 29%). The third one has a really high credit limit and a low balance, and it could easily accommodate the balances of the other two. The balance transfer rate is 9% and the fees would amount to $200. The rate is only good until May 2009 and there's NO WAY I will have them paid off by then, but then the rate just jumps to the normal APR of the card (25%) which is still better than the other two. I have had this card forever and only paid late once. I am likely to be adding another $5000 to the card soon because of the wedding/honeymoon (I'd still have room for the other two balances.) Should I do the balance transfer?
posted by desjardins to Work & Money (13 answers total) 1 user marked this as a favorite
 
I just saw this comment on a related thread. I never spoke to the collection agency, never acknowledged the debt was mine, never acknowledged it was accurate. The debt was incurred in Wisconsin; I now live in Illinois.
posted by desjardins at 6:07 AM on August 25, 2008


I'd skip the balance transfer and look for a consolidation loan at your bank or credit union.

Since you didn't ask about the wisdom of adding another 5K to your total debt, I'm going to skip that topic other than to say you should consider that amount in your consolidation loan. Paying 25% on debt is silly unless your credit is so poor that you have no other option.
posted by 26.2 at 6:28 AM on August 25, 2008


Will paying the $69 get it off your credit report, or will it stay as a black mark for a long time? (And is it just the $69, or are there a bunch of fees and charges added to that now?) To figure if it's worth the fight, look at how much time it will take versus the money that might be saved — if three hours on the phone will save $69, that's a pretty decent hourly rate. If it will take 30 hours and you might save $5, that's not so worth it.

As 26.2 suggests, and I'll make explicit, adding $5000 in debt when you have maxed out cards at 29% is a bad idea. All the minor issues involved here ($69 overcharge, credit score, possible interest saved for a year on the consolidation, etc) pale in comparison to the fundamental issue that you are continuing to live far, far outside your means. Saving a few hundred dollars by doing the balance transfer doesn't really matter if you add $5000 or more in new debt.

About the balance transfer: this is a spreadsheet problem. You have the interest you would pay on the high-rate cards for the year (accounting for how fast you might be paying them down) on one side, compared to the interest that would be earned by all that money at 9% plus the $200 fee. And then you factor in the risk that you will miss a payment and have the card jump to 25% or higher, leaving you with the same high interest rate and $200 in fees.

My bet is that a consolidation loan at your credit union would probably be a better deal, but if your credit is too low that may not be possible.
posted by Forktine at 6:50 AM on August 25, 2008


If you are not in the mood for a long drawn out battle with them I would pay it. However, if you want to mix words with them I'm sure you could get them to forget about it. As for the credit card debt, I would not throw it all on one card unless you had an awesome balance transfer rate with a lower interest rate afterwards. You could look for a card that might drop it down from 28 to 29% to something better like 18% in the meantime. The credit union/bank loan idea mentioned above might be your best bet. Plus you could add on your 5k honeymoon expense to that as well. Early congrats BTW.
posted by Mastercheddaar at 6:55 AM on August 25, 2008


Can you contact the cable company and get a letter saying that you $0 balance since X date?

Once you get a report from annualcreditreport.com you can dispute a charge .
posted by ejaned8 at 7:57 AM on August 25, 2008


If the debt is not valid, you can dispute it with the Credit Reporting Agency stating that you've paid it (and if you've got a canceled check, you may want to provide a copy of that.) If they cannot validate the debt, they must remove it from your record. It's worth a letter or two to remove the black mark.

As far as the balance transfer goes, it seems like six months of substantially less interest is a no-brainer. As other posters have noted, you seem to have an underlying debt problem right now and you should take a long, hard look at your prospects for paying that off in the next year or so before adding a whole bunch of additional debt, even for a wedding, especially at what's going to end up being a still-pretty-high interest rate in a few months.

(On preview: Missed the $200 fee. This is indeed a "spreadsheet problem" except that it's still an underlying cash flow problem. Apply some basic home finance principles, cut some costs, improve your income if possible, and pay that debt off.)
posted by mikewas at 8:37 AM on August 25, 2008


Paying the $69 will not erase the blot from your credit, so disputing the entry on your credit report is the way to go. You can dispute any blot on your credit report online with each of the 3 credit reporting agencies. It's easy. If the company who owns the debt doesn't come back with proof that your owe this debt within 30 days or so, they have missed their chance. Google dispute credit report here.

The collection agency bought this debt from the cable company for pennies on the dollar. They don't care about the validity of the debt, they just want to bully screw you out of your money. Don't encourage these scumbags by rolling over and giving them your money. In less time than it takes most people to earn $69, you can dispute this out of existence.

By shopping around (after this blot is disputed away) you can get way better rates than you are now getting.
posted by Daddy-O at 8:39 AM on August 25, 2008


If the cable debt is not valid, you should dispute it with each of the three credit reporting bureaus. Paying it off will leave the delinquent account on your credit records for the next 7 or so years.
posted by Juffo-Wup at 8:52 AM on August 25, 2008


PAYING THIS WILL NOT MAKE IT "GO AWAY"

If it is not valid debt, DO NOT PAY IT. Research ways (creditboards.com) to defend yourself, and make it go away quickly.

If you pay it, it will haunt you for 7 years on your credit report, which is worse than doing nothing at this point.
posted by SirStan at 9:22 AM on August 25, 2008


Thanks for all your answers thus far. About the $5000: I understand in light of the existing debt, it seems egregious. We are currently cutting other expenses as much as possible, including getting rid of cable TV. The honeymoon will be our first vacation in 4 years. I am going to dispute the $69 charge and see where it gets me. Anything to improve my score seems worth my while.

I didn't include this in the original post because I didn't want to muddy the waters with even more detail, but since some of you have brought up credit unions: My fiance is a Navy veteran and a member of the Navy Federal Credit Union. He says I can automatically become a member when we marry (I am not a veteran, btw). I will explore getting a lower-interest loan through them once we're married (in 5 weeks, omg), but if anyone has done this it would be helpful to know your experience. He cannot get a loan through them for reasons I don't want to go into now.
posted by desjardins at 9:55 AM on August 25, 2008


The debt:
I'd prioritize getting the debt down to a lower interest rate. It's going to take some time to get the credit report issue removed, and that entire time, you're going to be paying an outrageous amount of interest. Debt goes away much faster at lower interest rates. Best option, I think, would be to get a 0%-for-the-first-year introductory balance transfer card, if you can. Here are the best balance transfer credit cards. Watch for the transfer fees, as you know, but iirc, the Discover Card didn't even have one. If your credit score is low enough, this won't work, but don't be too put off by the requirement that you have "excellent" credit. At the time I did this, I wouldn't have called mine "excellent," and they gave me one, just one with a relatively low credit limit.

If that doesn't work, get a debt consolidation loan from a bank (possibly with a cosigner). A small bank or credit union might even be able to overlook that mark on your credit if you tell them your story and explain that you're disputing it. What's your immediate goal here -- credit score (say, to get a mortgage), or paying off the debt? If it's just about the score, then I'd get a debt consolidation loan instead of moving the money to a low-interest card.

Since any credit application will ding your credit (very temporarily), if you go this route, do them all at once -- if the applications are done fairly close in time, the credit bureaus realize that you're applying several places for the same thing and only ding you once.

If none of this works, I'd still consider moving the debt to that lower-interest option. If it saves you more than the fees will cost you (and factor into the calculation that you'll be paying the new card interest on your balance+the fees), then it will be at least no worse off than you are now. Also, if the credit limit there is so high that your utilization percentage on the card is still fairly low (like 30%, at least under 50%), then it is likely to help your credit score marginally, too.

Also, you know not to close those other credit cards even once you shift the balances, right? But of course, also don't use them! I use personal finance blogs to keep me focused on paying off debt and saving money.

The cable company error:
How is that $69 showing up? If it is just a 30-day or 60-day late, I might just pay it. Those dings don't hurt your credit much once it's a year or two in the past. If it's worse, I'd probably do something about it.

You can get this off your credit reports, but it'll take a little effort and organization. Treat this as a long-term project and get organized. You'll probably have to do two to three things, do step 2 approximately 30 days after step 1, keep records of everything you've done, etc.

To understand the steps to take, spend some time on creditboards.com/forums for awhile. It'll take a couple days to learn the acronyms and find the best stuff (mefi-mail me if you go this route and want some pointers). A dispute is the easiest, but there are other options. Fundamentally, it's on them to prove the debt is valid, so you will likely have success over the long run. Some of the people on credit boards know the relevant laws and have really figured all this out.
posted by salvia at 9:59 AM on August 25, 2008 [1 favorite]


I'm in favor of fighting the incorrect charge, unless you actually owe money. Call the company, and if it's honestly owed, pay it.

Call both credit cards, ask for lower rates. Might work; it worked for me. Rate was cut in half, just by asking.

Join a credit union, right now.

Don't incur more debt. Honeymoon later, spend less on the wedding stuff, etc.
posted by theora55 at 2:27 PM on August 25, 2008


Huge second to everything SirStan said above, including going to creditboards and reading some posts there.

You're eligible to join Navy Federal as a 'household member' - do it immediately. You'll get a far better rate with them than what you have. Then get all of your debt off those high rates cards and put them in a sock drawer (don't close them!). Utilization can be a big part of your credit score, ideally you want to be under 10% on your cards, and if not <10% then <30%. So yes, I think transfering the balance would be a good idea since you'd only have one card with high utilization vs. 2.
posted by sero_venientibus_ossa at 3:55 PM on August 25, 2008


« Older What's the best online information literacy...   |   How much to charge for use of original music? Newer »
This thread is closed to new comments.