Credit Card Cancellation Due to Delinquency...How to React

[Anonymous]

Hello! I am a 26 year old Systems Administrator/Marine Corps veteran. Recently, my fiance and I decided that we're sick of having to constantly move form rental to rental. We have decided to begin preparations to buy a home. After speaking with Veteran United about getting a mortgage load, I was sent a letter stating that I was denied....existentially because my credit sucks. My credit score (which im assuming was my FICO was about 530. VA loans require a minimum of 620.  Bellow I have listed some of what I believe to be are the most pertinent issues:

1.  Although I have 3 loans totaling about $14,000 paid in full, they have very spotty payment history.  The date of the loans range from 2008-2012

2.  I  had a $1,500 credit card, with many 30,60, and 90 day late payments which the bank finally canceled due to delinquency. I have since continued payments and have it payed down to $1,100.  Also, the bank refuses to reinstate this line of credit.

3.  I have held 3 jobs in the past 6 months due to the fact that I graduated, landed a new job that I hated, then was offered my dream job 2 months later, which I took. From my first job to the third job, I have over doubled my pay and acquired health benefits.

4. I had 1 charge off due to 1 $200 overdraft which I never paid back, which the bank agreed to completely remove in return for payment.

5. A $600 debt from AT&T which was reported to the credit agency by THREE different credit collectors.  I have since disputed this debt with two of the former debt holders who have agreed to remove the reports.
    I've also paid the entire balance off with the current collector.

6. $27,000 in student loans. Payments are deferred until this spring (just graduated). 

SO what should I do next?  Do you think having the above negative reports removed will be enough to raise my credit score to 620? Should I attempt to apply for another credit card in order to begin rebuilding my credit?
I currently have two credit cards in good standing. One which is about $350/$1500 and the other is $0/$1,200.

Also, before I fixed all these issues, I was approved for an auto loan...although the interest rate was high, do you think its a good idea to take it orderto establish better credit?  I'd like to begin looking for a house this spring.  Do I have a shot?

Thanks for your help!!!

[Anonymous]

1st - Thanks for your service o7.  2nd - Grats on graduating!  3- Grats on the dream job!!  Sounds like life is picking up very well for you.

1.  The spotty payment history is a significant problem. You can try sending a goodwill letter to the auto loan lenders that you used for each of them, asking to make the late payments disappear on your credit.

2.  The spotty payment history + charge off of the credit card is not good.  When was it sent to collections / charged off?  I would stop making payments on this until you 

     have the full $1100.00 to pay as a lump sum.  Send them a PFD letter "Pay for Delete letter" (google a sample lette) & say I will pay the full $1100.00 if you delete.

     So stop paying it until you have all the money.  This is critical.  They don't like deleting it from your credit card...but if you promise in writing to send a big fat $1100.00

     check, then they will do it.  This will be huge at fixing your credit score.  This big check gives you leverage over them.  They'll want your money.  Fax them the PFD

    letter once a week until they accept.  But you want their promise to delete in writing.

3.  With your income doubled, you can really make a lot of progress quickly fixing your credit.

4.  Definitely pay this $200 overdraft with the bank b/c they agreed to remove it.  But when you do these things, make sure they promise it in writing.  The easiest way to do

     this is go to myfax.com and you can use a cheap scanner + computer to use as an e-fax.  It's only $10.00 and it's worth its weight in gold to help fix your credit by 

     easily and quickly contacting lenders / creditors / credit report agencies to fix your credit i/o stamps and snail mail.

5.   This is a really nasty situation.  I had the exact same thing happen with me with Verizon and AT&T.  They were only 2 accounts sent to collections, but it bounced from

     collection agencies several times & they all reported it.  This alone totally destroyed my credit.  You definitely want to do a PFD letter, but you want to do it only with

     AT&T directly.  You'll promise a lump sum cashier's check via priority mail with tracking number as long as they promise in writing back to you that they will delete

    everything from your credit report (including all the collection agencies too).  Do not pay without this.  Your credit will not go up without the letting in writing to delete.

6.   How much will your monthly student loan payments cost?  How easily will you be able to afford it?

7.   I think you would need to wait quite a bit before trying to buy a house.  Maybe 2 years+.  Why?  Because fixing your credit will take a decent amount of time to have

    all of these things deleted.  And also because you want to save up a lot of cash to do a nice fat 20% downpayment on the house.  Take your time buying the house 

    b/c you don't want to buy a house when you are 620 score...the interest rate will be high for 30 years and it will cost you a lot of money.  Be more patient wait til your

   score is 700+ it will save you money in the long run I think.  While you're waiting for your score to go up, you will be saving lots of cash to pay down stuff.

I would not apply for a 3rd credit card.  Stick with the 2 credit cards and make sure they are paid every month.  Use autopay from your checking account so that you don't forget to pay them.  I wouldn't get an auto loan either.  As long as your car is in decent shape, don't get a new auto loan.  If your car is old / bad shape / you'd rather go ahead and buy a new one now (sooner than later) b/c you don't want to have to buy it 1.5 - 2 years from now right before you buy your house.  But if your car can last 2 more years, then I would def not buy a new car.

[Anonymous]

Tarheel,

Thanks for your reply!  The advice here seems pretty sound. I just wanted to bring up a couple more points.

I still owe/make monthly payments on that card.  In the event that they wouldn't erase the debt, wouldnt not having made payments make things worse?  They already denied my request by phone to remove the late payments, however I have not attempted it by mail yet.  Also, wouldn't  they want me to keep making payments rather than a lump sum due to the fact that they would make more money from the interest?

Also, according to the mortgage lender, the difference between the highest credit score acceptable and the lower credit score acceptable is only a 0.25% difference in interest rates. I'm pretty sure the VA restricts the nterest rate that lenders can charge.  Does 0.25% equate to alot when it comes to monthly payments on a 125-175k home?

Additionally, I don't plan on having a down payment as VA loans do not require you to have one. We would rather use the money to furnish the house. Again, I'm sure having the down payment would lower the interest rate for a normal borrower but I'm assuming I would be charged the max with or without the down payment due to my credit.

To be honest, I am in somewhat of a hurry to get into a new home. I've moved 4 times in the past 4 years and I feel like its really putting a strain on my family...especially my 2 year old son. Although we're good renters and ALWAYS pay our rent on time, we've had 2 landlords sell our the houses as soon as our lease was up...usually landing us at the parents house for a couple months until we can find another place to rent....which is very very difficult where I live.

Thanks for all your advice!!

Bobby

[IOBA]

My two cents.  Pay off the debt.  If you can do it in a lump sum, do it.  Get it off the books.  That will help you in a few ways -

1. The utilization percentage will be lowered.  This can raise your credit score.

2. When the creditor has received ALL of their money, they are more likely to consider deleting the lates OR deleting the tradeline.

If you can go to bank with some money for a down payment, even though the VA loan doesn't require one, that will help with the big picture.

For now, my advice is to pay off all of the debt as soon as possible.  Set up automatic payments if you can.  Don't incur any more debt!

Once the debts are paid off, ask the lenders to remove the late payments to help you purchase a house.

[Anonymous]

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@Anonymous wrote:

Tarheel,

Thanks for your reply!  The advice here seems pretty sound. I just wanted to bring up a couple more points.

I still owe/make monthly payments on that card.  In the event that they wouldn't erase the debt, wouldnt not having made payments make things worse?  They already denied my request by phone to remove the late payments, however I have not attempted it by mail yet.  Also, wouldn't  they want me to keep making payments rather than a lump sum due to the fact that they would make more money from the interest?  I don't think they can charge you more interest after it's charged off.  When they charge if off, they asses fees etc, but once it's charged off I think that's it.  

• If you keep making monthly payments, they'll be happy.  But you don't care about their happiness.  You care about them deleting the entire thing from your credit reports.  Worry about yourself - not them.  They will be infinitely more likely to delete it from your credit report if you do a PFD letter for the balance in full lump sum payment.  Make sure to get their confirmation in writing though by fax or snail mail.  

Also, according to the mortgage lender, the difference between the highest credit score acceptable and the lower credit score acceptable is only a 0.25% difference in interest rates. I'm pretty sure the VA restricts the nterest rate that lenders can charge.  Does 0.25% equate to alot when it comes to monthly payments on a 125-175k home?

• 0.25 would not make that much difference.  So if they will qualify you right away with that low interest rate, then that's pretty good.  Maybe just go for it then.

Additionally, I don't plan on having a down payment as VA loans do not require you to have one. We would rather use the money to furnish the house. Again, I'm sure having the down payment would lower the interest rate for a normal borrower but I'm assuming I would be charged the max with or without the down payment due to my credit.

• Thanks again for your service.  I'm glad vets like you get these awesome perks.  You totally deserve it.

To be honest, I am in somewhat of a hurry to get into a new home. I've moved 4 times in the past 4 years and I feel like its really putting a strain on my family...especially my 2 year old son. Although we're good renters and ALWAYS pay our rent on time, we've had 2 landlords sell our the houses as soon as our lease was up...usually landing us at the parents house for a couple months until we can find another place to rent....which is very very difficult where I live.

• That's just bad luck.  Don't let that bad luck rush you into making the biggest financial decision of your life (buying a house)

• One word of advice though from my own opinion.  I'm kind of anti buying a house.  I know that's extremely unpopular - but I really enjoy my mobility and freedom.  I signed a year lease but with the condition that I can go month-to-month after that.  Because I do this, I was able to apply for & accept a job offer which took me from CA to NC at the drop of a hat.  Huge signing bonus, relocation, massive salary increase...but it would have been very difficult to do so if I were chained to a mortgage.  So to me, yes I agree mortgage is def the best investment - but it comes at a price.  You're kind of stuck with a ball & chain to that house.  For me, my freedom & mobility is extremely valuable to me &  I wouldn't want to have to deal with renting it out or trying to sell it.  Such a headache.  But I'm in a huge minority here I think.

[kjel]

First things first, thank you for your service!

I know you are in a hurry to buy a home, but it will be worth waiting a while. The good thing is that you will have a VA loan which will work to your advantage if you follow through the plan that Tarheel outlined. I'd also consider using your student loans as a way to rebuild your credit-choose one of the income based repayment plans and make your payments on time all the time to help you build a positive history.

Like Tarheel said, a quarter point on a small mortgage isn't that big a deal. Even though you won't need a downpayment, having 3 months of your estimated monthly payment in the bank will make a lender less nervous during underwriting. I also suggest that you think about attending a pre-purchase housing counseling class and meet with a HUD certified housing counselor in your area. You will learn a lot about the purchase process and the housing counselors often know which lenders might have less stringent underwriting and also might be offering incentives. To find one in your area visit http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm

Good luck!