topic Re: Previous Late in General Credit Topics

Previous Late

Anonymous — Wed, 14 Oct 2015 07:29:55 GMT

Hello all. I have a student loan that I am currently paying off and will be paid off completely by the end of 2016. I had some late payments on the loan, with the last being in March of 2009. Been on time since. I want to know how long will that delinquency continue to report? Will it remain for 7 years after I pay the loan off? Or will the delinquency drop after 7 years from the missed payment?

Re: Previous Late

Anonymous — Wed, 14 Oct 2015 14:12:54 GMT

7 years from the missed payment.

Re: Previous Late

gilesjp1 — Wed, 14 Oct 2015 15:37:24 GMT

Fico will stop using the late in its score calculations 7 years from the occurance of the late pay, however the account history will remain for 10 years after the account is paid. IMHO its best to let the late fall off in March/April then pay off the account removing all traces of the late payment.

Re: Previous Late

RobertEG — Wed, 14 Oct 2015 21:50:18 GMT

The CRAs are required to cease the showing of a monthly delinquency in any normal,, routine credit report they issue after 7 years from the date of the delinquency.

While only excluded from the consumer's credit report and not actually deleted from the consumer's credit file, it is effectively "deleted" in the sense that others wont be able to see it. The distinction between credit report exclusion and deletion is not significant in scoring or in simply review of a consumer's credti report.

It only becomes significant should a party seek a full factual credit report that can, under very limited circumstances, be requested and obtained from a CRA.

Circumstances under which a normally excluded item can be shown in a special consumer credit report are set forth in FCRA 605(b), and are rarely requested.

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 04:04:23 GMT

Thank you all for your thorough responses. I'll be monitoring it closely as I don't anticipating paying the loan off before the 7 years arrives.

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 04:35:38 GMT

Hello, KM85. Congrats on your careful following of your own profile. Good for you!

Quick question: when your student loan is paid off at the end of 2016, will that be your only open installment loan at the time? Car loans, other student loans, mortgages, etc. are all examples of installment loans. When an installment loan is paid off and it is the only open installment loan you have, that can cause your credit score to temporarily take a hit. There's some pretty painless ways around that if you want us to tell you about them. Or you can just let the hit happen and not worry about it, which is fine too.

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 04:44:36 GMT

CreditGuyInDixie, good question. If I don't open up any more credit between now and then, I will not have any open installment loans. Please advise on what I can do to avoid taking that hit.

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 05:38:31 GMT

Here's the simplest and most illuminating way I know to describe it. Key principle:

All credit profiles are penalized if they have no open installment loans of any kind, or if they do but the total amount they owe on installment debt is very close to the total amount they originally borrowed. Both situations involve being penalized, even if the person doesn't realize it.

When a person has a single open installment loan, he is gradually paying more and more of it off. In the last few months of the life of the loan, he has gotten to a place where almost all of his installment debt has been paid off. Let's use a $20,000 car loan or a $20,000 student loan as an example. At first you owe almost the entire 20k. The percentage you still owe on your open debt is high: close to 100%. But in the last few months of the life of the loan, you may only owe (say) $1000. The percentage you owe on your open debt is very low: about 5%.

At the end of the life of your loan, FICO is rewarding you for having an open loan, and is also rewarding you for having paid off most of that open loan.

When the loan closes, you are no longer getting FICO points for either thing. That appears at the time to be a "hit", but in fact it is the normal state of FICO scoring when you have neither gold star going for you.

The solution that people here have found is to open what is called a Share Secure loan. The loan can be quite small ($500 is fine) but it should be for a term of 4 years, longer is better. A couple months after opening it, you then pay off most of the principal (but not all) and then keep the loan open for the full term of the loan. The result is (very quickly) an installment loan on your reports that appears to be mostly paid off, and since most of the principal is paid off, you pay very little interest. Alliant is one lender that appears very cooperative with this approach.

Note that this nice little technique helps you if (a) you need the extra points and (b) you are fairly sure you aren't about to be getting another big installment loan (like a 20k auto loan), If you get a big car loan, then the fact that the Share Secure loan is mostly paid off will be largely overwhelmed by the fact that the auto loan is not. Some people choose to not worry about adding the Share Secure loan until later, closer to when they need the extra points.

Let me know if this makes sense.

PS. If it seems like FICO is not giving you any scoring benefit for having successfully managed and paid off an installment loan over time, that's not true. You do get some scoring benefit for having successful closed installment loans. It's just that, for good or ill, the principles above still apply and the latest FICO models like it when you have some open installment debt that is mostly paid off.

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 06:17:31 GMT

Ok thanks for the tip. My questions are: 1. How much of a hit would I take once my loan is paid off? 2. Would my score increase over time without taking out another installment loan on its own? My FICO 8 scores are: EQ 720, TU 692, EX 705

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 06:56:28 GMT

Do you have any "negative" data on your reports? (Besides the one late on the one student loan?) This includes lates, collections, charge offs, etc?

How many credit cards do you have? When was the last CC opened? When was your oldest account on your report opened?

Do you know how to calculate your total credit card utilization? What is that right now? Are you currently able to pay your credit cards in full?

If you can answer these questions it will be easier to describe how high your score could go and how quickly.

PS. Do you see yourself needing to make a major credit purchase like a house or a car in the next 2.5 years? What tools are using to check your credit reports and credit scores?

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 07:23:58 GMT

Do you have any "negative" data on your reports? (Besides the one late on the one student loan?) This includes lates, collections, charge offs, etc? - A charge off for a credit card that shows on TU and is scheduled to drop off this month. How many credit cards do you have? When was the last CC opened? When was your oldest account on your report opened? - 2 CCs, last one opened in SEP of 2009. Oldest account opened in 1998 (still active, no lates ever). I do plan on opening another card this month however with my wife. That will be our main card which has reward benefits that we plan to use. It will be paid off each month. My oldest card (the one opened in '98) only had a $500 limit which I just requested an increase. It was increased to $1500. I have a total of 2 inquiries on my report. Do you know how to calculate your total credit card utilization? What is that right now? Are you currently able to pay your credit cards in full? - Credit card utilization is 0 (no balances). I seldom carry a balance. If you can answer these questions it will be easier to describe how high your score could go and how quickly. PS. Do you see yourself needing to make a major credit purchase like a house or a car in the next 2.5 years? What tools are using to check your credit reports and credit scores? - I do plan to buy a house in 2017. Another car is a possibility within the next 2 years based on our current vehicles.

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 13:30:33 GMT

Here are my thoughts.

NEGATIVE INFORMATION. You have a major negative that is scheduled to drop off in just a few months. (The charge-off at TU, which is why your TU score is so much lower than your others.). Great news! Your only other negative is a late (student loan) which will fall off next spring. Does the late appear on all three credit reports? When your negatives are all gone, your scores will be significantly higher. Am I right that these are your only two negatives?

CREDIT CARDS. You say that your credit card balances are all zero, and then go on by way of explanation to say that you seldom carry a balance. There's a crucial difference between reporting a balance and carrying a balance. It's a very important distinction for managing your credit cards. You will get a substantial score boost if you do two things:

(1) Make sure that exactly one card is reporting a small balance (e.g. $20).

(2) Make sure that the other cards are reporting a $0 balance.

That will cause you to have a very low utilization and it will cause you to get a lot of extra points. Note that you will get penalized if your credit report shows ALL ypour cards at $0. Let me know if you need help with understanding the difference between reporting and carrying balances. BTW, it is a really good habit financially to get in the habit of never carrying a balance. That just means always paying the full amount on the statement (after it prints).

The strategy outlined above (all cards zero except one with a small balance) is only important when you need extra points -- like applying for a new credit card or a loan. In general it's easiest if you use all cards naturally (though certainly keeping a close eye on spending). It's actually good to use each card at least a small amount, though it doesn't have to be be every month. Even when you are in your general use phase where you are not scrambling for extra points, it's still reasonable to keep your utilization down (less than 50%) and to pay them in full!

You should not apply for a new card right now. Wait until the charge-off drops off and until you get your credit card balances the way I describe above (one zero, one small balance). Then make sure that your credit reports conform the new state of affirs (on both counts). Once your credit reports confirm, then you should have a significantly better score and will be in a great place to execute your next step which was to apply for that third card.

The way you describe that third card, it sounded like you were going to try to open it as a joint card in both your names. Is that right? Many credit card companies no longer do that (though some do). There's a lot to be said for each person having their own cards in their own name -- it makes building credit easier and clearer to the CRAs. The joint card idea is not a dealbreaker -- you can do it if you want. It just may be better to have your own separate cards (but of course manage them together).

Let me know whether this all makes sense. This should be the first stage oif your credit improvement plan. Depending on how high your scores get after the late falls off, you may not need to do anything tricky with the Share Scure loan. But you should do this all first to see what you can achieve. A car and then a house are very real possibilities if you do things right.

PS. You didn't manage what tools you are using to check your scores and your reports. Can you clarify?

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 14:16:13 GMT

@Anonymous wrote:
Hello, KM85. Congrats on your careful following of your own profile. Good for you!

Quick question: when your student loan is paid off at the end of 2016, will that be your only open installment loan at the time? Car loans, other student loans, mortgages, etc. are all examples of installment loans. When an installment loan is paid off and it is the only open installment loan you have, that can cause your credit score to temporarily take a hit. There's some pretty painless ways around that if you want us to tell you about them. Or you can just let the hit happen and not worry about it, which is fine too.

I recently just paid off two installment loans, a car payment and a student loan. I did not take a hit for either.

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 14:35:17 GMT

Makes sense, thank you. I monitor my credit through a service provided by USAA that uses Experian. It uses the VantageScore 3.0 model, however. So instead of having a joint cc, how about an authorized user (being my wife)?

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 15:10:51 GMT

Hey KM85. Good to hear you are monitoring your Experian score. The Vantage is fine as long as you realize it may have a significantly different value than a FICO (though bear in mind too that there are many different FICO scores as well).

Side note: you listed your three FICO 8 scores in an earlier post. Where did you get them and when?

Since you are currently using Vantage (Experian) for monitoring, I am going to suggest that you join Credit Karma. It is free and it will give you two other Vantage 3.0 scores, one for TransUnion and the other for Equifax. It will be useful for you to have the exact same model being used on all three bureaus (just bear in mind again that the scores will be different than if you used some particular FICO model).

Far more useful than Karma's scores, however, is going to be the fact that you can pull your EQ and TU credit reports. You can do this as often as once a week and this is VERY important to what you are trying to achieve in the next few months. Scrutinize the reports and watch for negatives falling off, watch for the balances changing on your credit cards, etc.

Having one credit card used by both with a spouse being an authorized user is totally ok. Having an authorized user is not a harmful thing in any way (to you or her). It's just slightly more ideal in terms of you both building histories to be adding your own cards. HOWEVER... if at this stage you believe it will make things easier to manage your financial and credit life, then by all means do what helps you and her most.

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 15:10:04 GMT

Hi Vballchick! Thanks for the feedback. Three questions:

When did you pay off the two loans (auto and student)?

At the time you paid them off, did you still owe a lot on them? Or was it more like making the last payment on loans that were almost entirely paid off?

Do you have any other open installment loans? (Student, auto, personal, mortgage, etc.?)

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 15:50:09 GMT

My student loan was just over $10,000 that had just started payments in January this year and the payoff was around $9700. My car loan I've had for two and a half years. The payoff on that was a little over $19,000 with about 43 months left to pay on it. I closed on my refi on Sept. 18 (last month).

All three bureaus are showing the payoffs with a zero balance. There was either a 1 - 2 point boost or no change after the balances were reported with the exception of EQ I did loose some points for the house being paid off. I have no other debt except the house now and the new loan has not appeared yet on the CRAs. I do use three of my CCs for utilization. I have no other installment loans. I used the refi with cash out to payoff everything.

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 17:33:59 GMT

I get all 3 reports monthly through the service. Using that model, I'm at EX 773, EQ 716, and TU 714. Don't know why my EX is so much higher than the others. I pulled my FICO scores via the FICO 3B report and got all of my scores from all 3 CRAs. I did this on Tue. I have been monitoring my credit monthly for about 5 years now. I have disputed incorrect information and items that should not be there, and got what I wanted more times than not. Now I am fine tuning everything to get where I want to be. That charge off is only showing on my TU report and is scheduled to drop off this month according to my last dispute with them.

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 18:37:34 GMT

Hi Vballchick. Your situation is different from what we typically mean when we talk about someone's installment debt being all paid off (with a subsequent score drop).

One important reason is that your student loan payoff was made very recently. It sometimes can take a month or two for any particular profile change to result in score impact (partly because it takes a while for all CRAs to change and then new FICO pulls have to be initiated by the consumer after those couple months.

Another reason is that your SL payoff occurred simultaneously with a new big installment loan being added -- a mortgage.

And when your car loan was paid off earlier in the year, there was still open installment debt (most of which was not paid off).

Score drops happen when a person goes from their installment debt being mostly paid off to either (a) no installment debt at all or (b) their open installment debt being largely NOT paid off.

You installment debt was never mostly paid off -- you have always owed a large percentage of the original amount (prior to payoffs). And your payoffs have never resulted in not having any installment debt (e.g. you have always had a mortgage).

I encourage you to read one of the posts earlier in this thread. It begins "Here's the simplest and most illuminating way I know to describe it....." It explains the mechanism that cause you to be rewarded (having open debt that is almost all paid off) and how loan payoffs can sometimes cause you to lose that status. You never have been in a place where almost all your installment debt was paid off, so your loan payoffs never resulted in you losing a reward that you never had.

Re: Previous Late

Anonymous — Thu, 15 Oct 2015 18:40:25 GMT

Hi KM85. You are in good shape. Your FICO scores are already ok, and you still have negatives; and they are only going to get better. Follow the plan we laid earlier and you will be fine. Be sure you get in the habit of getting to know your credit reports very well.