DIY Debt Consolidation & the Aftermath: Credit 'Repair'!

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DIY Debt Consolidation & the Aftermath: Credit 'Repair'!

Account Closed
Homeowner · Signal Hill, CA · Member since 2015 · 521 posts · 70 votes

so, couple months ago i settled multiple unsecured credit cards and now finally they are reporting as closed (by the consumer) and settled (for the amount agreed; a few say for less than the full amount, though).

my fico/credit score is still terrible, low, though, at 528. last year, it was in the 700s but then i splurged at home depot and realized i may as well just default on all those credit cards and let them go to collections cuz i heard they settle for around half. besides i was going 'blind' (severe postcapsularhaze) for some time after a traumatic head-on injury and even after eye surgery in both eyes so my credit score was the least of my concerns.

anyways i'm wondering now that i do not have nor will i open any new lines of credit (no more credit cards, no more cell phone contracts, no mortgage, no auto loan, etc) indefinitely, how long might it take for my credit as far as 'score' to be back up to qualifying say for an FHA?

a year or two? much longer?? or do i have to wait for the negative credit card histories (ie, 180+ days late before closed) to drop off my credit record more completely in like 7yrs or whatever the current cutoff is?

do i now need to open secured lines in order to build it back? i havent ever considered starting a business line of credit (as my organizational endeavors are more in the nonprofit arena, not business) but might be open to that too if there is a way to start a business line of credit with no good personal credit to back it up with in the 1st place =/

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Jason Allen Taylor
Specialist · Harrison Township, MI · Member since 2015 · 54 posts · 23 votes
11y

Business credit can be built, but it will not help you as much as you think. You will be better served to re establish your personal credit.

In order to start rebuilding credit, the most pressing time-sensitive matter is to establish long-term open lines with good payment history as soon as possible.

Open a secured credit card with a limit of 4x of a regularly recurring bill - cell phone, water bill, etc. Have the creditor automatically charge the card every month, your bank automatically pay the credit card off every month, and your paycheck direct deposit into the account every week. Then cut up the card.

Open a small loan at selflender.com and draw it out for as long a term as you can. Pay down 50% over two months, and then make minimum payments automatic debit from your  bank account.

No matter what you do, DO NOT ALLOW EITHER OF THESE PAYMENTS TO EVER BE LATE. The easiest way to do this is to have your direct deposit split between two accounts. The account used to pay these two bills (and ONLY these two bills) should receive 130-150% of the amount needed to pay these two payments, and all of the rest of your money should go into a separate spending account. Get a separate debit card for each account. Put the debit card and checks for your bill paying account in a place where you will never use them, and don't touch that account regardless of how much money is in there.

Get a free account at creditkarma.com and track your progress. Do not take any offers, open any cards, etc., just use it to track your score and credit details.

There is much more that can be done, but these things should be done first. You can dispute, update, cajole, etc your credit reports any time, but you can't fake how long your good performing accounts have been active.

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  • Jason Allen Taylor
    Specialist · Harrison Township, MI · Member since 2015 · 54 posts · 23 votes
    11y

    Business credit can be built, but it will not help you as much as you think. You will be better served to re establish your personal credit.

    In order to start rebuilding credit, the most pressing time-sensitive matter is to establish long-term open lines with good payment history as soon as possible.

    Open a secured credit card with a limit of 4x of a regularly recurring bill - cell phone, water bill, etc. Have the creditor automatically charge the card every month, your bank automatically pay the credit card off every month, and your paycheck direct deposit into the account every week. Then cut up the card.

    Open a small loan at selflender.com and draw it out for as long a term as you can. Pay down 50% over two months, and then make minimum payments automatic debit from your  bank account.

    No matter what you do, DO NOT ALLOW EITHER OF THESE PAYMENTS TO EVER BE LATE. The easiest way to do this is to have your direct deposit split between two accounts. The account used to pay these two bills (and ONLY these two bills) should receive 130-150% of the amount needed to pay these two payments, and all of the rest of your money should go into a separate spending account. Get a separate debit card for each account. Put the debit card and checks for your bill paying account in a place where you will never use them, and don't touch that account regardless of how much money is in there.

    Get a free account at creditkarma.com and track your progress. Do not take any offers, open any cards, etc., just use it to track your score and credit details.

    There is much more that can be done, but these things should be done first. You can dispute, update, cajole, etc your credit reports any time, but you can't fake how long your good performing accounts have been active.

    2Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    11y

    From what I understand, the bite of bad history like yours (not a BK or foreclosure) softens enough to acquire a decent mortgage after about 30 months.  I'm not a big fan of going out and 're-building' credit through more borrowing.  I would rather my score go to 0.  Screw 'em.  You can get a mortgage with good credit or no credit.  It's that low credit thing you have to get through, as you know. I use to love having my high 700s score and did things to improve it all the time.  Maintained lots of cards with low balance to limit, etc. Got to 800. What a waste of effort that was.  Now I don't use 'em and they expire after 2 yrs of inactivity. $130k of available credit lines evaporating and I couldn't be more at peace. Just managing the amount of mail I was getting with new offers was overwhelming. You have a lot of interesting views and posts you share on here @Account Closed I wish you the best!

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  • Account Closed
    OP
    Homeowner · Signal Hill, CA · Member since 2015 · 521 posts · 70 votes
    11y

    Thanks Jason and Steve, you guys are awesome and like two sides of the credit 'coin'.

    I totally feel the same way about personal credit being more in 'best interest' than creating an alternate credit file via a business!

    Likewise, I'm hesitant to bother with a secured credit card. I mean, the interest on the security deposit I'm guessing will be like .0001% and the issuer might charge fees for just having it. 

    So I'm with Steve on screw 'em! 30 months sounds like music to my ears, as time flies afterall. Nope never had a BK nor foreclosure/repo nor any ongoing delinquent accounts since they're now all settled, so I'll just let those negative entries get so old enough they no longer count much against my creditworthiness and while I won't 'borrow' to build my credit I'll still entertain getting a cell phone contract (right now i'm on prepaid).

    To me, assets/net worth is more important than credit. But, being able to get morts in a couple or few years will help build my portfolio and stop me from buying properties all cash.

    Gee, I wonder if already having Verizon FIOS affects my credit? Or do I actually have to sign up to postpaid (contract) wireless phone service with them(or competitor)?

    1Reply
  • Jason Allen Taylor
    Specialist · Harrison Township, MI · Member since 2015 · 54 posts · 23 votes
    11y

    @Account Closed, I would still recommend creditkarma. You'll be surprised what reports and what does not. It is fairly likely that a contract cell phone by itself will not report, and your home tv/Internet is a coin toss.

    I used to be with you in saying "screw them", but after seeing the flexibility and options that good credit brings, I now believe it's best to play the game.

    Best of luck to you regardless of what path you take. :)

    1Reply
  • Account Closed
    OP
    Homeowner · Signal Hill, CA · Member since 2015 · 521 posts · 70 votes
    11y

    Ok I will give creditkarma a try, Jase! I'm definitely taking alittle of your path. Ie, i'm thinking if a Verizon subscription (already have FIOS without a deposit, may apply for a wireless contract; they may require a deposit) will provide one credit entry, that's better than no credit entry open.

    But yea unless FIOS is a credit entry, then currently I have no good open/active credit entry. Right now I just have gas, electric, water, tax, insuranceS bills, and about to open all those also at 2nd property cash-closing on later this month. Never had an auto loan or anything like that.

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  • Brent Paul
    Rental Property Investor · Shakopee, MN · Member since 2015 · 985 posts · 374 votes
    11y

    I can definitely identify with what you are going through.

    You should be able to get a secured credit card from your local bank.

    Capitol one is pretty good at approving those with lower credit scores.  

    You will need at least 1 line of credit to help rebuild ( credit card, student loan, car loan, etc)

    In speaking with a banker he informed me I needed at least 2 open lines.  I went from 500 to about 680.   Even with a foreclosure, items in collection, late fees, etc.

    It can be done.  The biggest hits to your credit will be late payments and bills in collection.

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