How do I begin repairing my credit?

[Anonymous]

I am a new member of this forum. Just 1 night's reading, I've learned so many new concepts that gave much hope. At the same time, I'm somewhat uncertain which way I should go to improve my credit, and would truly appreciate your suggestions.

My FICO’s around 650, and it's largely because of my negligence and bad habit. I had never any finance trouble, and credit utilization has been below 10% even when collections occurred. But somehow I managed to get 2 collections, all less than $100 (utility bills). I simply neglected the mails when moving (dumped "junk mails") or simply because I was stupid. Not knowing I could use GW/PFD letter, I have paid the collection in full a 1 or 2 years back. I recently had another collection of an original debt of $8 + 3 late fees, a total of around $70 dollars. What would be my best bet to improve my credit standing in a fairly short time? In my situation, would I likely succeed with a GW letter? Is there any way to persuade a lender that the FICO score doesn't truly indicate my finance situation?

[Anonymous]

aw, your user name makes me sad!

I was in the same spot as you a couple of years ago. I had bad credit just because I hadn't paid attention, paid late, didn't care...

I got back on track from reading everything here. Now I actively work to make it good, as opposed to just waiting around for it to happen, or wallowing in self-pity...I'm good at that.   

Also, yes, a paid collection will hurt you, and probably keep you from automatic approvals. But I have one, and when I recon I just explain that it was a bill I didn't know about for a long time, I tried to do the right thing and pay it, and that I didn't know what effect it would have on my credit. I got 2 cards recently just through recon. I know it helped that I was sincerely trying to improve.

Plus, you learned something from it, right? And you won't do it again, right?

I don't know how fast you can improve your scores, but 650 isn't a terrible starting place honestly. Start slow, and take baby steps. Let them see that you've learned to behave yourself. From the lenders perspective, your FICO does reflect what you have done, it just might not reflect what you've resolved to do in the future. You have to show them that.

And stick around here.

[Anonymous]

How many GOOD credit accounts do you currently have?

[Anonymous]

I have several credit cards with over 10K credit limit and paid on-time. The only reason I didn't pay the collection accounts was because I don't use those cards often and didn't bother to open their mail (stupid). I am planing to buy a house in 6 month, and I think my score will hurt my financing option greatly.

So far I've understand the concept of GW. Is there any other options I could try if GW fails? The debt was from Sprint PCS (several years ago) and GAP credit card (8 month ago).

[Anonymous]

Thank you for your encouragement. I will try GW and see if it works? Have you had any success other than waiting for it fade?

[JShidell]

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pjxf99 wrote:

Also, yes, a paid collection will hurt you, and probably keep you from automatic approvals.

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Why is that?  I never understand why a paid collection would hurt you more.  Aren't you suppose to pay?

To my understand most lenders prefer you to pay off your collections.  When I was trying to shop around for lenders about a year ago to see where I stood, they told me that I would need to pay off all my collections/charge-off accounts before I could even be considered.  They wouldn't even deal with me if I had unpaid collections.

v/r

James

[Anonymous]

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JShidell wrote:

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pjxf99 wrote:

Also, yes, a paid collection will hurt you, and probably keep you from automatic approvals.

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Why is that?  I never understand why a paid collection would hurt you more.  Aren't you suppose to pay?

To my understand most lenders prefer you to pay off your collections.  When I was trying to shop around for lenders about a year ago to see where I stood, they told me that I would need to pay off all my collections/charge-off accounts before I could even be considered.  They wouldn't even deal with me if I had unpaid collections.

v/r

James

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Paying a collection often results in the account being updated to make the collection appear more recent, which can hurt one's FICO score.

While you are correct that lenders prefer to see paid collections rather than unpaid ones, FICO is indifferent to the status of a collection, and scores paid collections the same as unpaid collections.  The reason for this is that FICO is intended to be a predictor of risk to the original creditor.  Once an account has gone to collections, that risk has already manifested itself, and it is no comfort to the original creditor that the debt was eventually paid to a CA.  FICO only cares that one avoid letting accounts go to collections in the first place, since that is where the risk to the original creditor lies.

Message Edited by cheddar on 06-11-2008 03:01 AM

[JShidell]

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cheddar wrote:

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JShidell wrote:

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Why is that?  I never understand why a paid collection would hurt you more.  Aren't you suppose to pay?

To my understand most lenders prefer you to pay off your collections.  When I was trying to shop around for lenders about a year ago to see where I stood, they told me that I would need to pay off all my collections/charge-off accounts before I could even be considered.  They wouldn't even deal with me if I had unpaid collections.

v/r

James

wrote:

Also, yes, a paid collection will hurt you, and probably keep you from automatic approvals.

---

Why is that?  I never understand why a paid collection would hurt you more.  Aren't you suppose to pay?

To my understand most lenders prefer you to pay off your collections.  When I was trying to shop around for lenders about a year ago to see where I stood, they told me that I would need to pay off all my collections/charge-off accounts before I could even be considered.  They wouldn't even deal with me if I had unpaid collections.

v/r

James

---

Paying a collection often results in the account being updated to make the collection appear more recent, which can hurt one's FICO score.

While you are correct that lenders prefer to see paid collections rather than unpaid ones, FICO is indifferent to the status of a collection, and scores paid collections the same as unpaid collections.  The reason for this is that FICO is intended to be a predictor of risk to the original creditor.  Once an account has gone to collections, that risk has already manifested itself, and it is no comfort to the original creditor that the debt was eventually paid to a CA.  FICO only cares that one avoid letting accounts go to collections in the first place, since that is where the risk to the original creditor lies.

Message Edited by cheddar on 06-11-2008 03:01 AM

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Yeah I understand that once a collection or charge-off hits your credit your credit is pretty much damaged regardless if the collections is paid off or not.  It sucks that the system works that way.  The only way to fix this I guess would be with GW letters or PFD letters

I just wasn't sure what pjxf99 meant when refurring to a paid collection would hurt you more as far as being able to get automatic approvals.

I understand.  Thanks

v/r

James

[nolimits]

As far as the 2 older collections, send them GW letters and hope for the best. It'll probably take multiple requests to get anywhere. If not, don't sweat them too much. And I say this only because I started talking to a mortgage lender recently. My middle FICO score is 575 and I had 2 old collections, one which was paid but was reporting incorrectly and another which is a medical bill for $119 that I was unaware of. The loan officer inquired about them and even though it bothered me pretty badly, it didn't seem to bother them. She said not to worry about them because they were so low dollar, around $500 total. Instead she was more worried about a few recent lates on an account I had. Of course, YMMV but that was mine on the collections. Still it bothers me and I want them gone.

For the new collection of $70...have you already paid? If not, negotiate. Do a Pay-For-Delete (PFD) letter. Basically you pay and they delete off your record.

And if you have 6+ months before you buy, keep your nose clean on payments and balances low on your cards. I think you'll be fine with a 650+ score.

[Anonymous]

I mentioned the collection potentially hurting you as far as auto-approval because I think any red flags need to be explained to a real person. Also, it was my personal experience that I would get turned down initially, and when I called to recon that's what they would ask me about.