What would you do? 575 Credit. 20k in Savings, ready to buy.

62 Replies

@Terre B.

See, I am on the same page as you!

I understand paying the debts is sound advice. I could do that as soon as tomorrow. But just as you said, it could remain on my account. I’ve called and tried to settle my 2 accounts, both different agencies, and they wouldn’t agree to delete. One agency agreed to Mark my debt as paid in full, but that doesn’t remove it, so what was the point?

I get I made mistakes, but I’m definitely trying to go about this the right way. Did you experience this at any point in your negotiations with the agencies?

Originally posted by @Rodger Curbelo :

@Mike Lee

I have tried. I spent the money, I owe the money, I actually want to pay them back. It would feel great! You know, a Biden off my chest. I’ve even called them to see if they’d do their part after I’ve done mine, and delete it. They won’t. It’s not very incentivizing to pay off a debt they’re going to keep reporting on, despite my willingness to settle it.

It sounds like your mind is made up on what you plan to do (or not do). Best of luck.

 

@Mark Kavin

The second paragraph is very sound advice, I never considered that. Thank you!

It’s a bit humiliating putting myself out there, and honestly it can be a bit confusing sorting through incorrect and correct information. I appreciate others sharing their actual personal experiences with me.

Originally posted by @Rodger Curbelo :

@Terre B.

See, I am on the same page as you!

I understand paying the debts is sound advice. I could do that as soon as tomorrow. But just as you said, it could remain on my account. I’ve called and tried to settle my 2 accounts, both different agencies, and they wouldn’t agree to delete. One agency agreed to Mark my debt as paid in full, but that doesn’t remove it, so what was the point?

I get I made mistakes, but I’m definitely trying to go about this the right way. Did you experience this at any point in your negotiations with the agencies?

 Nope.  Not a one would willingly remove anything.  Even when it was proven to be an error, or duplicate.  They dont get paid for that. 

Its easy to say, "you owe it, just pay it"  but its not always that clear cut.  

Is your car loan reporting?  Be sure it is and never late.  Also, credit karma lets your landlord report your rental payments for a fee.  If you have 12 or more months of on time rental history, consider that.  You need positive on your report to drown out the negative til you get it off. 

And contrary to what most on here have said, waiting for things to roll off, saving more, postponing investing until you are "ready"?  I disagree.   Life has a way of kicking you in the teeth just about the time you start to feel comfy.  You have no way of knowing what your situation might be in 2 years. Imo, the time to invest that $20K is now.  Maybe not in LA, but you can start with one door somewhere cheaper and build. 

@Rodger Curbelo  I know it can feel frustrating...and they will never “delete” it from your credit record.  It’s always best to show it as “paid in full”, which they have to report. You need that start to build trust with a bank or any investor in the long term. It will take time, but that’s why they call it “building credit”. Hope this helps!

Originally posted by @Uriah Maynard :

Dispute everything bad on your credit report three times each with all three of the reporting agencies. This will knock off a lot of the old or small stuff. Then pay off any that remain. That alone should get you up where you need to be credit wise. 

If you don't have a credit card, now is the time. People say to use it a bit each month but really it doesn't matter, you can pretty much just stick it in a safe and ignore it and it'll be fine, though eventually they may close it for inactivity, years from now. Neither of my earliest secured cards ever closed and they haven't been used even once since I qualified for a good cash back card shortly after buying my house. At this point I'd rather have the old account than my deposit back.

Also, don't put your gf on the mortgage. Her lack of income is a problem, and unless the money you're putting down is partly hers, there is absolutely no reason to put her on there, and there could be big consequences if you break up, though I'm sure you'll be among the lucky few who make it. Fix your credit, and you'll qualify on your own this year if you've got two years at your job. That said, you may need more money to buy in LA even with an FHA loan. You may qualify for a first time homebuyer grant to cover your down payment though, be sure to check on that.

Some good points here.


I was able to fix my credit using this same model years ago.  It’s tough to give advice without knowing the full scope of what’s exactly on your credit report. 

Also, Creditors are settling debt for $.10 on the dollar right now, begging for people to pay off debt if disputing the charges with the credit bureaus don’t work


I've personally never been a fan of FHA loans unless the deal really warrants it.
 
That being said, what you should do in terms of investing, you’re on track.  You’re on BP posting and learning so you’re ready when the time is right.


Good luck!

@Rodger Curbelo

Without knowing your complete financial picture, I would recommend settling all debts in collections, and get the momentum going with improving your credit score first. Open the lines of communication with collections. Sometimes once they see that you are a good person trying to make the situation right, they will work with you.

Using a credit card to make regular purchases like gas and groceries, automate your payments so you don't forget, and aren't carrying a balance month to month.

Your credit score can be a powerful tool in getting a loan and good interest rate should you ever decide to ever take that route. If you do decide to buy something cash just make sure you have enough cash reserves on hand in case something goes wrong. Depending on what kind of job security you have, I'd recommend having 3-6 months worth of expenses saved on top of cash reserves for the house.

If you are set on buying maybe try finding a good agent in your area that knows how to leverage their resources. They can sometimes find homes with absentee owners that might be willing to sell with a cash offer. This can sometimes be difficult and ends up with a lot of non responses but it has worked before. 

I also recommend focusing on getting that credit score to the FHA floor for 580. Control what you control. If you have credit cards apply for an increase in limits and keep your balance under 11% of credit limit for each credit card.

@Rodger Curbelo you got some work to do before investing. Get your credit score up. Save up more money. Keep working at your goal. I would find it hard to rent to someone with credit score of 575 and accounts in collection. No sure you would be able to get a mortgage. But don't give up. Get yourself in a better position and save more money. One bad AC or one bad roof leak and you would be heading to foreclosure and lose your 20k that you have saved up and put down. You should start with a house for yourself or a duplex and then parlay that into a rental in a few years.

@RodgerCurbelo

It’s been a good year to learn. One of the lesson I learned is from the one I look up the most, Warren Buffet: you should never invest until you wipe off all of your bad credit/loans.

I used all of my savings to wipe off all my nearly 10k credit card debts by consolidating all of them then pay it all off with “gazelle intensity” like Dave Ramsey would say. In a couple of months, my credit debts are wiped out, I’m saving with even more “gazelle intensity” once again and seems like I’m saving double the speed that I recouped and nearly tripling my savings that I had to use to wipe out my debts.

My score went from low 600 to now almost at 800.

That’s just this year when all of this lockdown started.

Be very smart with that capital you have right now. When you profit from your investment while owing banks/lenders/ collectors, you’ll just lose your profit at the back end paying your bad debts.

Talk to a financial advisor. Most of the time, if you give them a rundown of your financial problems they usually guide you in what to do.

Bottom line: make yourself bankable.

@Rodger Curbelo

My reco is to use avail funds to approach original debtors and pay them off if possible, so they post debt as paid (and get that in writing), or get as close to original creditor as possible. They don't have to remove the negative marks off credit, since that is true.

Then when debt gets "resold", and it will for a bit, you can challenge it and get it removed because technically you don't owe it anymore.

Then open new trade lines to push your utilization lower, to less than 30%.

Then sign up for a down-payment assistance program in your area, like a bond-program etc with and house hack. Not all lenders can do them, so do your research.

In the end credit score is more important than source of down-payment funds.

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