Rebuilding - Is there anything else I could be doing?

[Anonymous]

What I am about to write is probably not going to win me a popularity contest here.  I want you to know that I mean no disrespect.  Because I have been there.  I am only sharing the HARD lesson I learned.

So this young person ( I am guessing early 30s), is following the mantra that more lines of credit will build his/her score up.  And, to an extent it is.  Score has gone from 595 to 630 afterall.  And now, we have 10 lines of credit with a variety of sources that are allowing small lines.  And, yes, in one case a $4200 line.  (To some, not so small).  

But what is the long term objective?  My guess is that, like most of us, this person wants to see a day when he can borrow $500,000 for a house at the best available rate.

To do so, he will need a credit score of 740 or better.  

It is my humble opinion, that, no matter how many small lines of credit he opens, that score will never be achieved until "old" debts are settled amd cleared.  I can assure you, that skipping around an unpaid debt by "tricking" the system will leave a scar SOMEWHERE in this person's credit history.  And, no bank that I know of, will lend a large ammount of money to someone who walked away from such an obligation.

If it were me, here is the course of action I would take:

1. Call the creditor (American Express) at once and look for a settlement ammount.  (This is assuming that the total ammount cannot be paid over the next ten years.).  
2. Upon reaching that ammount.....and he may not get one, because they might have charged the ammount off at which point this person will most likely see this debt "sold" to one institution after another.  And....hey...guess what....EVERY TIME THE DEBT IS SOLD, IF IT IS DEFAULTED ON AGAIN, IT WILL SHOW UP AS ANOTHER WRITE OFF ON HIS CREDIT REPORT.  Different credit collecting companies are simply going to try different ways to get the money.  But...if Amex DOES agree to settle, then I would beg, borrow and steal from friends, family, banks....extra jobs...anything...to pay the settlement ammount.  Because when that ammount is paid...THEN ...he might be on the way toward building his credit to formidable levels.  ( And dont forget that if you do 'settle" you are obligated to pay tax on the ammount Amex "wrote off" on your next tax bill because the Fed Gov sees it as income.
3. Garnishment?  Really?  Ready to get your company and your boss involved in your credit problems.  Not a good option.
4. $200 payments?  Without interest, you are looking at 14 years to repay the ammount.  And, at no time during that 14 years will you see that debt "fall off" of your credit report.
5. Chapter 7?  Not the worst plan....but, on any application for a large ammount of money that question is going to be asked.  And, no matter who is telling you diffrently, it will stay with you for the rest of your life.

What people always forget when dealing with "Credit Scores" is that, any bank can turn down a loan for any reason that makes them skiddish.  After the "committees" review your report and all the options are weighed, one person is most likely going to have to eyeball you before a stamp of approval.  

Story:  years ago, I defaulted on a student loan with a bank.  They wrote me off.  My credit dropped to about 500...(or someting awful).  I called them to get the loan rehabbed.  it was about $22,000.  The guy on the other end of the phone asked me why.  Why would I want to actually pay the loan, now that all the harm that could be done to me was done.  My answer was that "I borrowed the money and promised to pay you back....and I am going to pay you back."  And I did.  I paid them back.  Every penney.  

You can manipulate the 'system" all you want.  You can open all those small lines of credit and watch your "score" trickle up two points at a time until the glass ceiling is hit.  But the best course of action is to bust your butt to pay EVERY PENNEY OF THAT DEBT BACK.  Because you promised you would.  And when you do pay it back...THEN...you will see your score get to adult levels.  Isn't it funny?  All these sophisticated logirithms and, at the end of the day, your WORD counts the most...just like the Old West.  

If I am reading your note right you are paying, like $100 per month to each of those ten creditors you are so happy to have.  $100x10 is $1000 per month.  At that rate, you can pay AMEX completely off in less than 3 years.  ( when they "rehab" a loan, guess what?:  no interest, just principle) Credit bureaus have respect for that.  Banks have respect for that.  YOU have respect for that.  And, YOUR FISCAL SELF RESPECT is the most important thing we are talking about here.

My friend, you CANT WALK FIVE MILES INTO THE WOODS AND DECIDE YOU WANT TO GET OUT IN FIVE MINUTES.  There is no 'quick fix' for this.  FREEDOM HAS A PRICE.

By the way:  My current "score" is 742.  But I really don't care so much because if I cannot afford to pay cash for things i dont buy them.  Want to see your score go up?  Try that strategy for awhile.  My wish for you is that you dont spend the rest of your life with all these 'corporate chains' latched onto you.  My wish for you is fiscal freedom.

[tbonecopper]

Sorry, but you're not entirely correct. 

Debts, even judgements, have a limited lifespan on someone's credit report. A judgement is max 20 years in Florida (assuming the creditor hasn't started garnishment; once that happens, you're stuck until it's paid for) With exception to student loans, pretty much everything "goes away" at some point. Take an eviction I had 7 years ago... it's not on my credit report anymore, and a bank wouldn't see it. 

I'm in my late 20s by the way. As far as buying a house, I don't believe in owning a home. I like the freedom a leased flat affords, and the nature of my job allows me to move wherever I wish as long as I have internet. 

As far as paying back the Amex debt, I'd love to pay it back. Unfortunately they won't let me make payments. Perhaps you missed that part. They want payment in full, or nothing at all (until they decide to garnish; if they do). I don't have $34k to give them, or even half the amount if they settled for 50%. I don't have 'family or friends' to borrow from either. Also, with nearly $90k in student loans (plus rent and some medical bills), I'm not left with a lot of money at the end of each pay period. Something has to give, somewhere. Unfortunately, it's been American Express for a number of years. Before that, it was student loans - to the point where they were all in default and garnishment was about to begin. After losing a tax return, twice, to the govenrment "I woke up" and was able to nip the problem in the bud. The unfortunate side effect was higher interst rates = higher monthly payments on federal and private loans. 

As for what I'm paying my creditors now, just because I have x amount of credit cards with $x in credit lines, doesn't mean they all have a balance. They don't. Most of them are at $0. Please don't assume to know my financial situation with regard to what's coming in and what's going out and to whom. 

Your situation with student loans is entirely different than my chargeoff / judgement. Student loans don't go away, they can't be discharged in a bankruptcy unless you're in a persistive vegetative state (essentially) and the government has no qualms about garnishing someone's returns or paychecks to get thier money. 

Also, bankruptcy stays with you for 10 years. After that, like most everything else on a credit report, it falls off. Not sure why you'd think otherwise. Sure, the mental effects of it stay with you for life, but financially, no.