Am I doing this right?

[Anonymous]

I'll try to make this short and sweet..

In 2006... my employer unexpectedly went out of business and I ended up not getting paid for the last 2 months I worked there AND I was out of work for about 6 months while I found a new job. In this time I let EVERY DEBT I had slide - I couldn't even pay my rent or buy food, so I had no way to pay my creditors. I spoke with them on the phone at the time and tried to delay payments for a while, but they wouldn't negotiate. So, I basically gave up trying to pay them. Before my no-income streak I had a mid-600 credit score.

Fast forward to last spring - I ran my credit reports and I have about 15 negative entries. Most of them are credit cards and store cards with low limits (Max $500) that are showing $1000+ owed on each due to fees and whatnot. I had a small student loan that says something along the lines of "reported to government" and another student loan that I was continuously late on (very late) but I deferred and will start paying on again next month (and I will be ON TIME every time!!!). Everything else has gone to collections (and changed hands numerous times) and will "age off" in 2013 or so. There were a few things on the report that looked off so I disputed those and 1 was removed. The rest of the "baddies" I am just trying to avoid until they age off, because even if I settled with them they will still show as bad (right??).

What I am doing now - I don't even get letters from those past debts anymore and when I have gotten one from a law firm I write a letter saying that I dispute the debt and I haven't heard back from any of them after that letter. I got a car loan (29% interest rate) in November 2010 (that I am always on time on) and I got a secured credit card a few months ago with a $200 limit - which I use every month but pay more than the minimum ON TIME every month. I recently applied to Wells Fargo to try to refinance my car loan as the interest rate is killing me! Out of the $2400 I've paid on the loan the principle has only gone down about $500. Wells Fargo denied me, but were nice enough to send along my Transunion credit score which was 506.

I know I seriously fudged up my credit score and I *think* I am going about fixing it the right way. I'm just looking for advice on what I'm doing and if I'm heading in the right direction? Or is there something I could be doing differently? I just really want to get out of this mess, it's so embarrassing to have such a horrible credit score - not to mention COSTLY (seriously, my car payment is ridiculous).

Thanks in advance to anyone who cares to enlighten me

[llecs]

Welcome to the forums!

I'd suggest reading the following:

Common Abbreviations

Credit Scoring 101 - great for knowing what is in your credit score and to see how your score is impacted.

What Steps Do I Take - great for learning the repair process.

and Example letters - PFDs, GWs, DVs, etc.

If not wanting to go after the baddies, then your only option would be to wait it out. If you want your score to move, you would have to roll up your sleeves though. Check out the Steps link above for more info.

I would rapidly save though. If any of your past creditors decide to sue, then at least you can pay them off to avoid a judgment from reporting. Don't do anything to any account if you don't have the $$$ to pIF if you had to or SOL expires.

I'd get in the practice of PIF your CC each month. It's a good habit and helps maximize your score, though the unpaid CCs are a huge drain on your util.

I'd continue to pay the car loan but I would add extra to the payment of $100 or two. I'd get your scores into the 600s and try to refi with a local CU or bank. Paying extra will reduce the principal owed and therefore reduce the interest. And when you refi, a lender would be more open if the loan to value is higher.

[RobertEG]

Collections are a major derog on your CR, and significant score improvement will most likley depend on the removal of those derogs from your CR.

If the debts are legitmate, then disputing their accuracy wont be a viable option.  If unpaid, then asking for good-will removal will not work.

So removal from your CR is required.  You can obviously just wait the 7 years plus 180 days from the DOFD on the OC account, and let them age off.  To get earlier removal, you will have to offer an acceptable level of payment, and additionallly obtain their agreement to delete the collections in exchange for that payment.  Just paying wont result in any CR deletion, and wont improve your score.

It appears that you are taking the appropriate actions.  The only additional action is to try to throw some $$ their way in exchange for an agreement of CR deletion.

[Booner72]

Hi - I think you are pretty on track.  I can feel your pain on your auto loan rate.  I got financed at 24.99.  DUM DUM DUM ME.  There is no way to get out of it so I'm taking the advice from around here and throwing an extra hundred a month at it until it's gone.  I also know how it feels to be embarrassed about horrific credit scores.

I never thought I'd see the light at the end of the tunnel but I think I can see a glimmer of sunshine in my financial life right now.  I'm sure you will, too.

The good thing is you don't have any bankruptcies or judgments.  The other good thing is you are working now and moving on from a bad time in life.

Good Luck!

[Anonymous]

Thanks for everyone's input! I am glad to hear that it seems I'm taking the right steps to fix the mess I made.

I wasn't planning on trying to settle with any of the past debtors, as I'm only a year or two away from them aging off and I honestly don't have the extra money right now to offer any significant settlement (I do work full time, but I am 7-months pregnant so I am saving everything I can for my *unpaid* maternity leave!).

I did have a question about my ridiculously high interest car loan.. If I had someone co-sign the refinance, get a lower interest rate and put the money I'm saving towards the car loan to pay it off faster - that would help me, right? Would it make more sense to borrow $10k from someone and pay off the loan entirely? Or is me actually making the payments monthly doing more good for me?

Thanks again! You guys are awesome!

[sharpie]

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 Would it make more sense to borrow $10k from someone and pay off the loan entirely? Or is me actually making the payments monthly doing more good for me?

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You making the payments on the auto loan, on time, is helping your CR.  You making the payments, on the auto loan on time, at 29% interest is killing you.  If somebody will pay off the auto loan for you, and you will have reasonable, affordable payments, well... if someone were to offer that to me, I would jump at it.  Sometimes being able to survive trumps fixing a CR, especially when there are much less expensive ways of doing it.

Additionally, letting the old accounts "age off" your CR sounds good, but the reality is, they will usually come back to bite you in the butt later on, when it is really inconvenient.

Having a child in the mix is not going to help matters - kids are great, but exepensive, time consuming and tiring!  I suggest getting a good, solid plan going now, with a good, reasonable budget that you can live within.  It will clear up the past debt, alleviate surprises going forward, and make your life a whole lot easier in the long run.

Just my .02, speaking from painfully gained experience