Remembrance of Financial Catastrophes Past
June 24, 2014 9:20 AM Subscribe
Asking on behalf of a friend (let's call her "Liz"): can a credit restoration company help fix a credit report with multiple charge-offs? If not, what CAN be done? Sadly drifting swirls of bleak gray snowflakes within...
In a nutshell: Liz had great credit until the late aughts. However, 2007-2009 were personally and professionally disastrous, and during this period, she had roughly six credit card accounts (of several thousand dollars apiece) reported as charge-offs by their respective lenders.
Liz is doing pretty well financially at present - she's got a good job, a consistently-paid mortgage, low revolving debt, and a modest nest egg. However, she'd like to move in the next few years and is worried that the charge-offs will prevent her from getting a new mortgage.
A local "credit restoration" company told Liz that they'd be able to resolve these debts and improve her credit for roughly $15K. She can afford it, but wants to do due diligence before dropping such a big sum.
Liz's questions for you, oh wise Hive:
- Does credit restoration work for people who are NOT in imminent financial peril (that is, people who are contending exclusively with OLD bad debt)? Most credit advice seems geared towards those who are actively hemorrhaging money, NOT people whose past bad decisions are haunting them.
- What sort of questions should she be asking the restoration company? What sort of guarantee/contract, if any, should she demand?
- If working with an agency is NOT a good idea, what recourse does she have? She's familiar with the MeFi-favorites (CreditBoards.com, the NFCC and CCCS).
In a nutshell: Liz had great credit until the late aughts. However, 2007-2009 were personally and professionally disastrous, and during this period, she had roughly six credit card accounts (of several thousand dollars apiece) reported as charge-offs by their respective lenders.
Liz is doing pretty well financially at present - she's got a good job, a consistently-paid mortgage, low revolving debt, and a modest nest egg. However, she'd like to move in the next few years and is worried that the charge-offs will prevent her from getting a new mortgage.
A local "credit restoration" company told Liz that they'd be able to resolve these debts and improve her credit for roughly $15K. She can afford it, but wants to do due diligence before dropping such a big sum.
Liz's questions for you, oh wise Hive:
- Does credit restoration work for people who are NOT in imminent financial peril (that is, people who are contending exclusively with OLD bad debt)? Most credit advice seems geared towards those who are actively hemorrhaging money, NOT people whose past bad decisions are haunting them.
- What sort of questions should she be asking the restoration company? What sort of guarantee/contract, if any, should she demand?
- If working with an agency is NOT a good idea, what recourse does she have? She's familiar with the MeFi-favorites (CreditBoards.com, the NFCC and CCCS).
she had roughly six credit card accounts (of several thousand dollars apiece) reported as charge-offs by their respective lenders.
It is not completely clear from your question - were these CORRECTLY reported as charge-offs? Or did she eventually pay them, and that paid-off status is not reflected on her report?
As Ruthless Bunny suggests, she should get all 3 of her credit reports (however if she hasn't reviewed them recently she can probably get them free from annualcreditreport.com rather than paying through MyFICO). If anything is wrong at all, she can challenge it herself by following the challenge procedures through the respective credit firms' websites. Also, again as RB suggests, things older than 7 years should be rolled off and if they are not, you can challenge that as well. Also, if she has a discover card, they are now posting the FICO credit score for free on their online account; you don't need to pay for that either.
However, if the report is correct - if she legitimately never paid these accounts that are designated as charge-offs - then the best you can really do is wait for them to roll off after 7 years. The good news is that she's almost there! Depending on whether she badly wants to move in the next 18-24 months.
posted by Joey Buttafoucault at 10:04 AM on June 24, 2014 [2 favorites]
It is not completely clear from your question - were these CORRECTLY reported as charge-offs? Or did she eventually pay them, and that paid-off status is not reflected on her report?
As Ruthless Bunny suggests, she should get all 3 of her credit reports (however if she hasn't reviewed them recently she can probably get them free from annualcreditreport.com rather than paying through MyFICO). If anything is wrong at all, she can challenge it herself by following the challenge procedures through the respective credit firms' websites. Also, again as RB suggests, things older than 7 years should be rolled off and if they are not, you can challenge that as well. Also, if she has a discover card, they are now posting the FICO credit score for free on their online account; you don't need to pay for that either.
However, if the report is correct - if she legitimately never paid these accounts that are designated as charge-offs - then the best you can really do is wait for them to roll off after 7 years. The good news is that she's almost there! Depending on whether she badly wants to move in the next 18-24 months.
posted by Joey Buttafoucault at 10:04 AM on June 24, 2014 [2 favorites]
Just wanted to add, if Liz has $15,000 to pay a "credit restoration" service, she can easily get another mortgage when the time comes.
She can use that $15,000 towards a downpayment, which tends to make banks happy to lend money. I mean, if that $15,000 represents 5% of the total purchase price...it's kind of a no-brainer for the bank.
So tell Liz to hang onto her dough and to read and review her credit reports herself.
Here's an article from the Federal Trade Commission on Credit Repair Scams, especially a "new credit identity."
posted by Ruthless Bunny at 10:13 AM on June 24, 2014 [2 favorites]
She can use that $15,000 towards a downpayment, which tends to make banks happy to lend money. I mean, if that $15,000 represents 5% of the total purchase price...it's kind of a no-brainer for the bank.
So tell Liz to hang onto her dough and to read and review her credit reports herself.
Here's an article from the Federal Trade Commission on Credit Repair Scams, especially a "new credit identity."
posted by Ruthless Bunny at 10:13 AM on June 24, 2014 [2 favorites]
Holy crap - 15K -- no. Even if it worked, it wouldn't be a good investment at that price.
ALL an organization like this can do (let's pretend the people offering it aren't total scammers for a minute) is contact all the credit bureaus and contest anything that's actually wrong. Anything negative that is accurate will inevitably get put back on once the company that reported it in the first place.
So let's say she had a bunch of credit info that was not in fact accurate or there was a lot of existing bad debt where she might minimize the hit on her credit scores by professionally negotiating settlements - part of the settlement being "this doesn't get reported negatively." Medical bills are a common scenario for this. $15K would buy a lot of time from a local attorney experienced in credit law.
But that doesn't sound like where she's at. If she's currently in good shape, she should do this (channeling Dave Ramsey for the moment here):
- put the $15K on whatever debt she has, or put it in savings. Liquidity is a huge thing these days in residential mortgages - they looked for things like "6 month's liquid cash to pay the house payment in case you lose your income*" when we got a mortgage in late 2011.
- use a credit card sparingly and PAY IT OFF EACH MONTH. OK, Dave wouldn't agree with this, but I think it's a component of the FICO scam that has to be played if you see a mortgage in your near future.
- as mentioned, get her reports from the big three and look for things that are inaccurate or mischaracterized. If they're really inaccurate, challenge them. We've found information from other people mixed in our reports a scary amount of the time. If there's something that's adverse but accurate, just be prepared to explain it.
- Dave talks about manual underwriting, as in "find a mortgage company that does manual underwriting." In plain english, that means a real human being makes a credit decision, not a computer reading a FICO score. Not sure this exists in a pure form anywhere these days - we used a local bank but they still said they had to "sell it" to a larger bank so there you go. Nevertheless, using a local bank or credit union is probably a better bet than going to your nearest national bank branch.
I'm not as gung-ho as Dave Ramsey is about paying 25% down on a house, but in this situation it would probably help her to try to make enough of a down-payment to avoid the mortgage insurance. This is a huge addition to the monthly payment that is a lot more significant than the posted interest rate in a lot of cases. If she can't avoid it at the start, make it an aim to pay down early and not spend 10 years on that "plan."
I doubt she's as bad off as she thinks. Not many people have gotten through the past 10 years unscathed by the volatility in the economy.
*if I lost my income, I wouldn't put the highest priority on my house payment, but they don't need to know that.
posted by randomkeystrike at 10:16 AM on June 24, 2014 [2 favorites]
ALL an organization like this can do (let's pretend the people offering it aren't total scammers for a minute) is contact all the credit bureaus and contest anything that's actually wrong. Anything negative that is accurate will inevitably get put back on once the company that reported it in the first place.
So let's say she had a bunch of credit info that was not in fact accurate or there was a lot of existing bad debt where she might minimize the hit on her credit scores by professionally negotiating settlements - part of the settlement being "this doesn't get reported negatively." Medical bills are a common scenario for this. $15K would buy a lot of time from a local attorney experienced in credit law.
But that doesn't sound like where she's at. If she's currently in good shape, she should do this (channeling Dave Ramsey for the moment here):
- put the $15K on whatever debt she has, or put it in savings. Liquidity is a huge thing these days in residential mortgages - they looked for things like "6 month's liquid cash to pay the house payment in case you lose your income*" when we got a mortgage in late 2011.
- use a credit card sparingly and PAY IT OFF EACH MONTH. OK, Dave wouldn't agree with this, but I think it's a component of the FICO scam that has to be played if you see a mortgage in your near future.
- as mentioned, get her reports from the big three and look for things that are inaccurate or mischaracterized. If they're really inaccurate, challenge them. We've found information from other people mixed in our reports a scary amount of the time. If there's something that's adverse but accurate, just be prepared to explain it.
- Dave talks about manual underwriting, as in "find a mortgage company that does manual underwriting." In plain english, that means a real human being makes a credit decision, not a computer reading a FICO score. Not sure this exists in a pure form anywhere these days - we used a local bank but they still said they had to "sell it" to a larger bank so there you go. Nevertheless, using a local bank or credit union is probably a better bet than going to your nearest national bank branch.
I'm not as gung-ho as Dave Ramsey is about paying 25% down on a house, but in this situation it would probably help her to try to make enough of a down-payment to avoid the mortgage insurance. This is a huge addition to the monthly payment that is a lot more significant than the posted interest rate in a lot of cases. If she can't avoid it at the start, make it an aim to pay down early and not spend 10 years on that "plan."
I doubt she's as bad off as she thinks. Not many people have gotten through the past 10 years unscathed by the volatility in the economy.
*if I lost my income, I wouldn't put the highest priority on my house payment, but they don't need to know that.
posted by randomkeystrike at 10:16 AM on June 24, 2014 [2 favorites]
$15,000 - no, that is a huge rip off.
However, Credit Restoration is a real thing, and can have a big impact. I do know that it really can work. People commenting above are wrong. There are concrete steps that can be taken besides just challenging wrong info.
I am very actively involved in a networking group of real estate investors, a REIA (Real Estate Investment Association). Several of the people in my group flip homes. To do that, they need buyers - and with many of these buyers, they need to improve their credit in order to get the deal done. I know several people who commonly set up rent to own contracts, help the people with a credit restoration program, and then get a mortgage agreement a year or two later from there.
I am telling you, I have seen this done several times - even with people who have NEVER had good credit in their life. Good credit restoration really works.
The problem is, there are lots of people out there doing it incorrectly and ripping people off. Credit restoration, if do correctly, is a process that takes at least one year.
There is a very reputable credit restoration guy from Tampa, FL who is a member of my REIA. He works with clients all over the country. I can even give you several referrals about his work, other investors I know who use him regularly. I can also put you in touch with him. He charges $500, for a one year program.
If you want his contact info, mefi-mail me. I will be happy to send along his name. This guy is the real deal. If Liz follows his program, at the end of the year, her credit will be vastly improved. In fact, I believe William even has some sort of money back guarantee.
I don't work for him, I am not getting anything from this, feel free to use whoever you want. If you go to any local REIA (Real Estate Investment Association), there will be credit restoration guys at those meetings. Real credit restoration guys - the kind that seasoned, professional real estate investors use - not the scam artists. I am 100% positive that you can find a real credit restoration guy at any local REIA.
But, like I said, there is reputable credit restoration guy that comes to my REIA in Central Florida, and he works with clients in all 50 states.
posted by Flood at 12:24 PM on June 24, 2014 [1 favorite]
However, Credit Restoration is a real thing, and can have a big impact. I do know that it really can work. People commenting above are wrong. There are concrete steps that can be taken besides just challenging wrong info.
I am very actively involved in a networking group of real estate investors, a REIA (Real Estate Investment Association). Several of the people in my group flip homes. To do that, they need buyers - and with many of these buyers, they need to improve their credit in order to get the deal done. I know several people who commonly set up rent to own contracts, help the people with a credit restoration program, and then get a mortgage agreement a year or two later from there.
I am telling you, I have seen this done several times - even with people who have NEVER had good credit in their life. Good credit restoration really works.
The problem is, there are lots of people out there doing it incorrectly and ripping people off. Credit restoration, if do correctly, is a process that takes at least one year.
There is a very reputable credit restoration guy from Tampa, FL who is a member of my REIA. He works with clients all over the country. I can even give you several referrals about his work, other investors I know who use him regularly. I can also put you in touch with him. He charges $500, for a one year program.
If you want his contact info, mefi-mail me. I will be happy to send along his name. This guy is the real deal. If Liz follows his program, at the end of the year, her credit will be vastly improved. In fact, I believe William even has some sort of money back guarantee.
I don't work for him, I am not getting anything from this, feel free to use whoever you want. If you go to any local REIA (Real Estate Investment Association), there will be credit restoration guys at those meetings. Real credit restoration guys - the kind that seasoned, professional real estate investors use - not the scam artists. I am 100% positive that you can find a real credit restoration guy at any local REIA.
But, like I said, there is reputable credit restoration guy that comes to my REIA in Central Florida, and he works with clients in all 50 states.
posted by Flood at 12:24 PM on June 24, 2014 [1 favorite]
Let me add one thing to my comments above - Liz might be able to read some books, follow some of the advice above, and do her own credit restoration by herself. But it is so much harder on your own, when you don't really understand what you are doing, you don't have time to figure it out, and you are emotional connected to the results
Like going to the gym, or trying to lose weight - if you have a professional trainer guiding your through each step, each exercise, setting a schedule, holding your feet to the fire, making a plan, and generally encouraging you - that helps tremendously. There is a reason people join groups like Weight Watchers - because a professional with a solid plan, tailored to your specific needs, makes the whole thing much easier.
Honestly, I have seen the value of good credit restoration professionals - and it is completely wrong to dismiss them quickly. At least, it is wrong to dismiss the good ones - and I know a good one.
A good one should cost under a $1,000. The price you quoted above is an outrageous rip off.
posted by Flood at 12:40 PM on June 24, 2014
Like going to the gym, or trying to lose weight - if you have a professional trainer guiding your through each step, each exercise, setting a schedule, holding your feet to the fire, making a plan, and generally encouraging you - that helps tremendously. There is a reason people join groups like Weight Watchers - because a professional with a solid plan, tailored to your specific needs, makes the whole thing much easier.
Honestly, I have seen the value of good credit restoration professionals - and it is completely wrong to dismiss them quickly. At least, it is wrong to dismiss the good ones - and I know a good one.
A good one should cost under a $1,000. The price you quoted above is an outrageous rip off.
posted by Flood at 12:40 PM on June 24, 2014
I was in touch with a credit restoration company to see what they could do to improve my score in time for a house purchase I was planning to make. They walked me though all the items in my credit report that were negatively affecting my score (a few credit card bills I was late in paying out of sheer negligence). I took notes. Then they told me it would cost 1K+ for them to do what it takes to get these items removed from my credit report.
I thanked them and proceeded to do myself everything they said they would do.
Specifically, I wrote to the credit card companies and asked for a goodwill adjustment. They were very nice and responded positively, and pretty quickly too.
My credit score went up within about four months.
Didn't cost me a penny.
posted by Dragonness at 1:26 PM on June 24, 2014 [1 favorite]
I thanked them and proceeded to do myself everything they said they would do.
Specifically, I wrote to the credit card companies and asked for a goodwill adjustment. They were very nice and responded positively, and pretty quickly too.
My credit score went up within about four months.
Didn't cost me a penny.
posted by Dragonness at 1:26 PM on June 24, 2014 [1 favorite]
Response by poster: Just to clarify: the $15K isn't the company's fee; it's about half of the charged-off debt, which they claim they can utilize to settle up ALL of the debt, and repair Liz's credit to.boot.
posted by julthumbscrew at 7:00 PM on June 24, 2014
posted by julthumbscrew at 7:00 PM on June 24, 2014
I wouldn't try to get debt charged off if she's got a decent income and the debts are legit. Doing "settlements" will make her credit worse, almost on par with bankruptcy. About the only exception is a bunch of medical bills where they seem to expect some negotiation. But I guarantee there's a fee in here somewhere, and her best bet is to get a real attorney and spend that fee with them. Try to get someone who understands credit law but whose default setting is NOT "let's file for bankruptcy."
posted by randomkeystrike at 7:40 AM on June 26, 2014
posted by randomkeystrike at 7:40 AM on June 26, 2014
This thread is closed to new comments.
Okay, so Liz needs to get copies of all of her credit reports, she may want to get copies of her credit scores too.
All bad debt falls off of your credit report after 7 years. So if a charge off is over 7 years old, from the last date of payment/dealing with it, then it can be removed. You will have to write the credit reporting bureau (there are three) and request it. They'll get with the reporting company and confirm, and then it should come off.
Note: I had a notation on my credit report of an apartment I rented in 1993. It showed as an open account on my Equifax report for YEARS after that. Every year, I'd write them, it would come off and then somehow come back on. It wasn't really an issue, but it was bothersome.
Time and good payments will repair credit, and nothing else.
So go to MyFico, buy the reports AND the scores and see where you are.
Credit repair services are scams and bullshit and no one should do business with them
posted by Ruthless Bunny at 9:28 AM on June 24, 2014 [10 favorites]