I am 25 and have horrible credit from when I was 18. I want to clean this up to get a house. How do I start?
04.December, 2008
I have a default student loan, a college dorm charge off, $500 for an old bank account, Old Sprint Cell Phone, Old power bill.—Pretty much every piece of credit that I got—i destroyed.
I think that my score is below 400.
Is it a pipe dream to fix this mess and assume that someone would give me a house?
What would my steps be?? I do not want to go to a Debt Consolidation Agency because i have heard so many bad things.
Please help!!!! I know that I messed up royally but I need facts on how to fix this nightmare!!!!!!! Please advise–serious answers only!!!!!
There is a lot you can do to help your credit. Here are some steps:
1) Pull all three reports (you can get them free once a year at www.annualcreditreport.com) and if you can afford it, get your score (so you know where you started.)
2) Create a spreadsheet of ALL Your bills and ALL your income. Divide your "current' bills over the months worth of income (power, cable, whatever). Figure out how much you need in order to jUST make it to the next paycheck (no eatintg out or shopping) And set aside the rest to pay down old debts.
3) Start with your smallesst 'bad' debt on your report. Some say do the biggest things first, but mentally its better to work from the smallest up so you see progress and keep motivated. Try not to 'settle for less than owed" as this is an even bigger ding. Ifyou must do this atleast negotiate that it wont show on your report as less than full.
4) Once a bad debt/collections is paid off, immediately dispute that item on your report. At worst, it will be updated as 'paid". At best, the company wont respond (They got their money so they dont care) and it will get completely deleted. Just claim the account is not yours on the dispute.
5) When you get to a manageable point, you need to work not just on the old bad debt, but on creating new, good debt. Get a secured credit card or if you qualify a small regular card. No more than $250 is needed. Stay under 33% of your limit and make steady monthly payments. You need "GOOD" accounts to balance off the old– you cant just pay off the bad stuff and not add good stuff.
Within 3-4 years you should be atleast into the 600's– good enough for a home. Within a year or two you could be in the upper 500's.
05.December, 2008 um 3:54 am
Usually bad credit is only on your credit report for 7 years. If you ruined your credit when you were 18 and are 25 now, it has been 7 years. The bad items should be off off your credit report any time now. At least within the next year- unless you racked up bad credit after you were 18 also.
I guess the best thing would be to buy a copy of you credit report or go to http://www.freecreditreport.com to get a free copy. See what all is on your credit report. A lot of bad items may have already dropped off- you'd be surprised
Then, I would try to establish some good credit. This may take a while to get your score in the good range. Don't apply for a lot of credit cards or other credit because if you are denied it goes on your report and lowers your credit score.
Look into geting a "secured" credit card. You pay like $200 and then you get a card with a limit of $200. Its basically to help teach you to use credit wisely and pay off your balances each month. When you cancel the card you get your $200 back. My husband got a secured credit card and it helped his credit. He had problems when he was young and stupid too (Not calling you stupid)
Also, try to get credit from a gas station. Gas card are generally easier to get than major credit cards , or even try goodyear or another local mechanic shop. See if you can get an account for them with a low credit limit.
You could also try to take out a small loan from your bank or credit union and then make sure to pay it all back. Make your payments on time each month.
When you finally do get a credit card or other credit..make sure you pay off the ENTIRE balance in full each month. Don't EVER go over 50% of the limit on your card. If you have a $200 limit, don't spend anymore than $100 and then make sure to pay it off in full.
If will take a while to establish new creit and you won't have a perfect credit score over night but if you are serious and mature about credit and you are patient, you will eventually be able to have good credit and get financed for the house you want. Good Luck!!! (sorry its so long)
I just want to say, at this point in the game, since everything is about to drop off of your credit report anyway…don't go to a credit consolidation co or worry about payiing off your debts. Even if you paid all of you debts off it would still stay on your credit report. Once its on your report there is nothing that can be done to get it off except to wait it out. Even if you had a $1000 debt on your report, if you paid it off it will show up "paid" but it will still be condidered bad credit on your report. its useless to pay money for something that wont help.
If the debt HAS NOT been reported to the credit bureau yet- then pay it off. But once its been reported just forget about it. it will stay on for 7 years even if you pay it off in full.
I'd save all the money you would have used to pay everyone off and put it towards a bigger down payment on your house. You'll need a bigger down payment since you have bad credit.
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05.December, 2008 um 4:15 am
pay all of those things off or consolidate them ….then slowly get small loans that you pay off on time…if u pay the loan off all at once it doesnt help you need to pay them every month ON TIME!….that will slowly build your credit but for sure i would say consolidate…GOOD LUCK
Or you could file bankrupsy but it depends on how fast you want your house…they basically pay it all off but then you have bad credit for seven years but during those seven yrs you can start establishing your credit again
Also we just bought a house and my husband has great credit and mine is just okay…anyways if u go to a morgage company they can almost find you a loan for a house no matter what kind of credit you have if its bad like you say then you will probably get a higher interest rate or a higher payment but its worth a try they can give you some good advice.
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05.December, 2008 um 4:45 am
i had the same thing happen, i went to the bank and talked to them about my options. they were pretty helpful. if they cant help you. o you can find someone to do a rental purchase. hope this helps
good luck
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05.December, 2008 um 5:07 am
I'm going through the same thing. I started drowning into debt after Hurricane Katrina, & it's not a good feeling. I also don't wanna do debt consolidation. I wish I had some good advice for you, but I need advice myself.
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05.December, 2008 um 5:39 am
You can try to contest them with the three different credit unions yourself. You can usually talk them into removing a few from your record. Debt consolidation wouldnt be a good idea unless you are trying to pay off the amounts.
There are companies that you pay to help clean up your record and help remove charge offs and other items of your report. Do a search on the web on cleaning up your credit
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05.December, 2008 um 6:17 am
Step #1: Pay all your outstanding debt. But first get assurances IN WRITING that if you pay the debt they will remove the negative record from your credit. Some will refuse to do so.
Step #2: Apply for credit cards and small loans. You have to start small to rebuild your credit.
Step #3: Save as much downpayment as you can. If you can put down 20% on the house, the chances greatly improve of you being approved.
Step #4: Do not apply for a house until your FICO goes over 670.
This whole process will take several years. If you can't wait, you can always try to find a home with seller financing. Instead of the bank, you make payments to the seller.
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05.December, 2008 um 6:32 am
Contact any companies that you owe money to and work out a payment plan. Bad marks do stay on your report for 7 years but if you did not fix the problem (ie: pay the bill) it can stay on longer. Also you should be entitled to get a credit report from any of the 3 reporting agencies. Look it over to make sure it's accurate. Too many times innacurate info can mess up your credit.
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05.December, 2008 um 6:37 am
Do NOT got to a debt consolidation company. THEY ARE SCAMS. I used to work for one (until I figured out how the scam worked). All a consolidation company does is have you pay them a fee up front and then send in monthly allotted payments, which they hold in their own account (collecting interest for themselves) until you have a decent chunk saved up. Then they go to your debtors and tell them to accept partial payment or nothing at all. Most of the time the debtor will take partial payment for amount owed. Once a debt has been negotiated and paid the process continues until all other past due accounts have been negotiated and satisfied in the same way
THE REASON THIS IS A SCAM IS BECAUSE YOU CAN DO THIS ALL YOURSELF WITHOUT THE HELP OF A DEBT CONSOLIDATION COMPANY! And then you won't have to pay all the unnecessarry fees that go along with this service.
I know that doesn't answer your question but I hope it helps.
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05.December, 2008 um 7:27 am
Stop worrying. You're going to be fine. First, you phone up every institution you owe money to and tell them you're going to start to pay them a little at a time. You'd be surprised how helpful they'll be, since many many people ignore debt and run from creditors. Don't run any more - that's the start. You're working, right? Figure out exactly how much money you have after all your bills are paid. Now, every cent of the leftover - even if it's just $40 - belongs to the people you owe money to. Write a list of the people you have to pay back. Phone each and negotiate an amount that you really can afford right now to pay them - even if it's just a small amount. But the best thing would be a loan from your bank to pay off everyone. It would have to be secured by you somehow - do you own anything? If your bank won't help, you'll have to find somone who will co-sign a loan, giving the bank access to THEIR collateral item. It's going to be tough for at least a year and you may need to get a part time job, but it will be worth it to have your reputation back. Good luck.
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05.December, 2008 um 8:15 am
well first thing is first.. start paying that stuff off! once you pay it you can start to build good credit again!
I'm currently doing this as well my student loan went to garnishment and is finally is paid off.. but i as well have sprint bank, power, other phone companyes and some other utilities!
what was told to me was a few things so pick your poison!
start with how much you can save or use to your debt monthly!
eg i have 100 each month i can put to my debt!
so look at your credit report and find out the cheapest one lets say its for 300 and put all debts in order so lets say we have 5 things on our report! 1. 300 2. 500 3. 550 4.560 5. 1500
okay so you only have 100 per month wait untill you get around 500 bucks saved! and pay off the #1 and but 100 to number 2 and 3 so now you have 2. 400 3. 450 ect
next month you have 100 bucks put 50 on each and continute this process untill paid off!
or what i choice
just wait until i get enough money saved and haggle with the settlements and start at one and pay it of then move to the next!
Remember they will settle well most of them will!
i owe a bank 700 so i'm going in with 500 and asking them to settle and clear my account so i can get a new bank account!
sick of cashing checks at party stores! oddly enought i started to do this at 25 -26 years old but not with a lot of money just start the plan! and i'm 27 now!
Goodl uck to ya!
and it hurts to give away that money JUST DO IT!
you'll thank yourself later! even tho i'm still waiting for that! but it's worth it once all is paid off!
References :
05.December, 2008 um 9:03 am
There is a lot you can do to help your credit. Here are some steps:
1) Pull all three reports (you can get them free once a year at http://www.annualcreditreport.com) and if you can afford it, get your score (so you know where you started.)
2) Create a spreadsheet of ALL Your bills and ALL your income. Divide your "current' bills over the months worth of income (power, cable, whatever). Figure out how much you need in order to jUST make it to the next paycheck (no eatintg out or shopping) And set aside the rest to pay down old debts.
3) Start with your smallesst 'bad' debt on your report. Some say do the biggest things first, but mentally its better to work from the smallest up so you see progress and keep motivated. Try not to 'settle for less than owed" as this is an even bigger ding. Ifyou must do this atleast negotiate that it wont show on your report as less than full.
4) Once a bad debt/collections is paid off, immediately dispute that item on your report. At worst, it will be updated as 'paid". At best, the company wont respond (They got their money so they dont care) and it will get completely deleted. Just claim the account is not yours on the dispute.
5) When you get to a manageable point, you need to work not just on the old bad debt, but on creating new, good debt. Get a secured credit card or if you qualify a small regular card. No more than $250 is needed. Stay under 33% of your limit and make steady monthly payments. You need "GOOD" accounts to balance off the old– you cant just pay off the bad stuff and not add good stuff.
Within 3-4 years you should be atleast into the 600's– good enough for a home. Within a year or two you could be in the upper 500's.
References :
05.December, 2008 um 9:32 am
This is a good question. My advice is that you should start paying off these debts, give small payments to all and make those payment regular. Make sure to keep receipts of any payments as some companies do not bother to update the credit reporting agencies that they are now getting payments. If, in the future, you have to get any errors removed from your file-you will need those receipts -so never toss them out!! Good Luck!!
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