Question on How to Proceed in the New Year

[John060675]

Hello all,

I hope everyone's holiday season is going well.  I wanted to ask a question concerning how to proceed with the upcoming New Year in a financial way and credit score way.  My goal is to buy a home finally, and my credit scores are EQ 602 and TU 622 (both true scores from myfico.  My EX is unknown due to obvious reasons.

I have a couple charged off accounts and one collection showing on my credit reports.  The totals are as follows: 

PenFed: $15,055 on closed credit card account. DOFD 12/2008 - this still shows up in my credit card utilization

Springleaf Financial:  $2,490 on loan.  DOFD 9/2008

Columbia Recovery Group:  $3,508 (up to $4,828 with their additional interest).  Date assigned 11/2008.

I will have a year end bonus coming my way, and I will have a good tax refund.  These will allow for one of two things.  I could either pay off the debts (assuming I can settle for less with PenFed) or I could put the money away in investments as a downpayment on a home in the future. 

I am thinking of paying off the debts, but I want to make sure it will positively influence my score enough to matter.  Also, I hope they will PFD, even though I have tried numerous times with Columbia Recovery Group and they keep saying they will not.

I am wondering what you all would do. Should I pay the debts off or save the money and just bide my time.  If I choice to bide my time, then I would have enough for a 20% downpayment on a home in two years and no PMI insurance.

What would you all recommend doing?  By the way, my SOL is 4 years in the state I live in.

Thank you for your advice and happy almost New Year.

[Anonymous]

It looks like you have another year to be out of SOL.  Are any of the creditors actively trying to collect?

[John060675]

The only one is Columbia Recovery Group.  They call once every two weeks, and I do not answer.  I will only deal in writing with them.

The other two are suspiciously quiet.

[Anonymous]

Yes, the quiet ones are the ones that worry me the most.

Any of them could file a suit against you anytime before the SOL has expired.   I would be concerned with the PenFed one only due to the amount owed. 

Do any of them update your CR monthly?

If your ultimate goal is to get them at least settled, you'll need to talk to them.   At least in writing.

I think I would start with the one calling all the time.  See if they would do a PFD.

[RobertEG]

I would never recommend to anyone not to pay a legitimate debt.  Its a personal matter.

As for the FICO implications of doing so or not doing so, unless you get the item of information deleted from your CR, it will still count in FICO scoring.

The only way to "assure" CR deletion is to wait for the credit report exclusion period to expire, and the adverse item thus dies of its own old age.

And even that is not legally absolute, as section 605(b) provides, under certain rare circumstances, for items that have otherwise passed their credit report exclusion periods to still be viewed.

In the specific future situation where you apply for a mortgage, loans of $150,000 or more are one of those special situations that entitles the prospective creditor to request and obtain a full credit report that includes all previiously reported adverse items, including those that have otherwise passed their CR exclusion periods.  Most feel that lendors rarely, if ever, request such expanded credit reports, but it is legally available to them.  Additionally, when you apply for a mortgage and fill out an application, they will probablly ask you for a list of all debts owed, unqualified by whether their credit report exclusion period has expired.  You can choose to omit listing of the debt, recognizing that they may never come across it on their own.  Most mortgage lendors will require that all unpaid debt be satisfied prior to their final mortgage approval, so it might become an issue of their knowledge.  If they have previously pulled your CR prior to exclusion of the item, they may already be aware of the debt.

How to proceed is, in my opinion, a matter of personal choice.

[John060675]

Yes, PenFed updates monthly, and each time it comes up as a "new deliquency" on my credit alerts.  It shows up as a each month.  It sucks.

The collection reports each month, and they add additional interest and fees.  The Springleaf account does not update frequently.

[Anonymous]

I would start with PFD and/or settlement offers to each one.  It can't hurt and you are making the effort to pay them something.

Do everything in writing.

[John060675]

Thank you two for the advice.  Sorry to ask another question, but do you think I should wait until December of 2012 when the SOL passes before I start this process?  Or is it better to go ahead and do it sooner rather than later?

Thank you.

[Anonymous]

Were you going to settle of PIF? 

[John060675]

I was looking to settle the PenFed, but PIF the other 2.