Fixing Terrible Credit, but small outstanding debt

Creative Real Estate Financing
8yFollow

Fixing Terrible Credit, but small outstanding debt

Beau R.
Kingston, PA · Member since 2018 · 1 post · 0 votes

Hi,

I'm 26 years old and my credit is very bad, about a 400 Fico score. I ruined my credit during some rough times about 2 years ago, but have rebounded to put myself in a pretty good position. I'd like to start investing in real estate in 1-2 years. Although I don't make a lot of money, I'm extremely frugal and live in one of the lowest cost of living areas in the entire country, so I'm able to sock away $500+ every month. I actually have enough in cash to pay off the entirety of my debt (except the student loans) right now. I also invested in cryptocurrency in early 2017 before that market took off and have about $25,000 worth of cryptocurrency that I can partially withdraw to help build my credit. 

I have about $20,000 in student loan debt which has been on Income Based Repayment at times, although it has never been in default.

Aside from that, I have two credit card debts that are currently with collection agencies of about $1,200 and $350 each and about $200 more in miscelaneous debt with a collection agency. I was also frequently late with utility bills 2-3  years ago, although that has not been a problem lately.

 I'd like to get myself in a position where I can start investing in Real Estate in 1-2 years, but but I'm not sure how to best go about putting myself in a position to qualify for a real estate investment mortgage. I have a few very specific questions

1) How much should I focus on rebuilding personal credit, and how much should I focus on opening an LLC VS building business credit via something like a Dun and Bradstreet account? Can building credit under a brand new business name over the course of the next year go a long way toward obtaining a mortgage when the time comes?

2) Should I pay the full amount of the debt back to the collection agencies and hope that that drastically improves my score, or would I be better off negotiating a reduced payment with them? 

3) How can I use my current capital to take out secured loans to rebuild credit without paying ridiculous interest rates?

Thanks in advance for responses.

0Reply
23 views

Most Popular Reply

Alexander FelicePro Member
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
8y

personal credit is critically important.

Even if you don't use banks, a private lender is not going to like you having poor repayment habits either, it's a must fix immediately situation imo

1. I wouldn't worry about LLC and business credit at all. Business credit isn't' that valuable and won't be to you for a long time. It's also unlikely that you'll be buying anything in a business name that won't require you to be a personal signer anyway.

2. if the collections are only ~2-3K I would pay them off asap. Still going to take 7 years for it to fall off your credit. Time wasted helps no one, especially once it's in default

3. with the amounts you have, you're not paying much in interest. You don't have a efficiency problem, you have a cleanup-old-mess problem. I would get it cleaned as soon as possible, I wouldn't take out new debt to fix old bad debt. With a 400 it's unlikely anyone will give you any kind of loan at all anyway.

start fixing this now, with ferocity, you're going to be feeling these effects for nearly a decade ahead, the sooner you fix the better.

[email protected]Podcast Guest on Show #301
1Reply
See this reply in the discussion

4 Replies

Jump to latestLatest
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    8y

    personal credit is critically important.

    Even if you don't use banks, a private lender is not going to like you having poor repayment habits either, it's a must fix immediately situation imo

    1. I wouldn't worry about LLC and business credit at all. Business credit isn't' that valuable and won't be to you for a long time. It's also unlikely that you'll be buying anything in a business name that won't require you to be a personal signer anyway.

    2. if the collections are only ~2-3K I would pay them off asap. Still going to take 7 years for it to fall off your credit. Time wasted helps no one, especially once it's in default

    3. with the amounts you have, you're not paying much in interest. You don't have a efficiency problem, you have a cleanup-old-mess problem. I would get it cleaned as soon as possible, I wouldn't take out new debt to fix old bad debt. With a 400 it's unlikely anyone will give you any kind of loan at all anyway.

    start fixing this now, with ferocity, you're going to be feeling these effects for nearly a decade ahead, the sooner you fix the better.

    [email protected]Podcast Guest on Show #301
    1Reply
  • Michael Ablan
    Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    8y

    1.) Pay off all of your collections ASAP

    2.) Continue paying off student loans.  Never miss a payment on anything again

    3.) Get a credit card.  Most likely you'll have to get one that requires a deposit to open.  Use it for ALL of your spending, and pay it off in full every single month. 

    As your credit improves, open up another credit card.  Spend on it, but pay it off in full.  NEVER MISS A PAYMENT.  

    You've got a long road ahead of you, but you'll build it back up as long as you prove yourself as a credible borrower.

    Good luck!

    0Reply
  • Lauren B.
    Asheville, NC · Member since 2017 · 170 posts · 242 votes
    8y
    If you have the cash, call the collection agency and offer them 1/3-1/2 of what’s owed and tell them you can pay TODAY if they agree. Settle the debt. Ask if they will remove it as a collection from your credit report as part of the negotiation. If you can settle that debt, next step is to go to a credit union or small local bank and try to establish a new line of credit to rebuild. A car loan, prepaid credit card, gas credit card - and PAY IT OFF EVERY MONTH. Also, I have friends who have had luck with disputing the collection amounts owned with equifax and credit reporting agencies. Some may drop off your report if the companies don’t respond. Spend time researching how to rebuild your credit before you invest in real estate.
    0Reply
  • Jacqueline Pelzer
    Mount Vernon, NY · Member since 2016 · 86 posts · 16 votes
    8y
    I had my identity stolen, plus a short sale (which had read as foreclosure proceedings on my credit report) plus some other bad marks on my credit. I ended up retaining Lexington Law. I used them for about a year and a half. My credit went from somewhere in the mid 300’s (didn’t know it could even get that low) to almost a 700 when I stopped using them. I made sure in the meantime to always pay on time, I got 2 secured credit cards, and I kept my debt to income below 20%. Now my credit is around 760. Pay off the debt, settle with the collection agencies (but don’t pay them a cent til you get the agreement in writing that they will take it off your report) and make sure they send you a discharge/debt paid in full letter.
    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free