Bad Credit

[DoOrDie]

Hello CFers!

Since you are a knowledgeable group, I wanted to pick your brains for a moment. I have a friend who has quite bad credit as a result of the recession. No, it's not me, although by saying that you'll all think it's me.

Anyway, what are the best steps to take to start to get his credit score back into shape?

I appreciate all advice!

 

[CyFan3]

Hello CFers!

Since you are a knowledgeable group, I wanted to pick your brains for a moment. I have a friend who has quite bad credit as a result of the recession. No, it's not me, although by saying that you'll all think it's me.

Anyway, what are the best steps to take to start to get his credit score back into shape?

I appreciate all advice!

It's not something you can obviously fix overnight, takes time. Here's a few tips.
1. Consolidate your debt if you can. Better to have 1 monthly credit card payment than 4, if your friend has that kind of debt.
2. Pay your bills on time, something that gets overlooked.
3. Close any open accounts with no balance

 

[ISU_phoria]

Actually, closing accounts hurts credit scores.....only slightly though. I believe the reason is because"they" want to see long-term good credit standings on accounts.

 

[geburgess]

It's not something you can obviously fix overnight, takes time. Here's a few tips.
1. Consolidate your debt if you can. Better to have 1 monthly credit card payment than 4, if your friend has that kind of debt.
2. Pay your bills on time, something that gets overlooked.
3. Close any open accounts with no balance

That's one thing that I've always stressed to friends with credit cards.

3 is also really great advise, unused cards will actually show up as negatives on a credit report.

I'll add this: 4. If possible, pay your credit card bill in full, instead of at or just above the monthly minimum.

 

[ISUAgronomist]

Actually, closing accounts hurts credit scores.....only slightly though. I believe the reason is because"they" want to see long-term good credit standings on accounts.

% of available credit being utilized also increases, which is viewed negatively on credit scores.

 

[cmoore_23]

also do not use any more credit cards unless he can pay the balance in full the next billing cycle

 

[ISUAgronomist]

also do not use any more credit cards unless he can pay the balance in full the next billing cycle

+1

 

[burn587]

Payoff cards on time, and on major purchases like a car, take out a loan even if you have the cash to pay for it upfront. Then pay off that loan early and your credit will soar. Having different types of credit helps too. I had below average credit in college but by paying off my car loan and student loans early and paying my credit card bills in full every month my credit score is now over 800.

 

[CrossCyed]

Yup, paying stuff on time consistently is the easiest thing you can do to help it.

 

[DoOrDie]

What if there was something that he didn't pay in the past that went to collections (shared an apartment with roommates and they couldn't pay rent)? Is there a way to get that off before 7 years?

 

[fccy]

What if there was something that he didn't pay in the past that went to collections (shared an apartment with roommates and they couldn't pay rent)? Is there a way to get that off before 7 years?

If your friend's name was the only one on the lease, only by paying it off. Having said that, if it is at collections, they should take monthly payments.

And your friend should then go after the roommates (could be very tough without something written out, however). May have to just eat that one, however.

 

[fccy]

The other points made above are correct:

Make payments on time, and for more than the minimum due.

Don't overuse credit cards

Do not, at this point, close any inactive accounts. Use the inactives cards like once every 3-6 months for something minor and pay it off with the next bill. That shows the card as active, which will decrease your % of debt load, and better a credit score. I have a Younkers card for this.

It took me a while to recover from the excesses of being a college student with many credit cards. It took one thing: discipline.

 

[enisthemenace]

Okay...here's one. I've never missed a mortgage, car or any other kind of payment...ever. I've had only 1 credit card, ever, and I use it sparingly...about once a month and only on small things. I've had to use it before, in emergency situations, but I always pay at least 4 times the minimum when that happens.

You'd think, or at least I did, at my age, I would have pretty good credit. I just found out I don't, and the reasons given were limited (credit) 'age' and active credit history.

 

[usedcarguy]

What if there was something that he didn't pay in the past that went to collections (shared an apartment with roommates and they couldn't pay rent)? Is there a way to get that off before 7 years?

There is one way, and it's a little shady if it works. Basically he would file a dispute with the credit bureau concerning the negative info. What happens then is the bureau sends out a verification to the creditor to either confirm or deny the debt. This is a time sensitive process - the creditor only has 30 days to reply. What he would be hoping for is that they're busy enough or can't produce the records on a timely basis to not get back within the 30 days. If that happens, the credit bureau removes the info. It's a bit of a long shot but it does happen. This is basically what those fly by night credit repair people do.

I should add that this only works in the event of a collection item or other types of accounts. If there is a judgement entered then you are screwed as public records stay on there for 10 years whether they are paid or not.

Otherwise I'd try to reach an up front cash settlement with the creditor to get it behind him. He may not realize it, but each person who signed the lease is on the hook for 100% of the debt.

 

[Scott34]

Had a friend of mine get into trouble by getting in over his head with a couple loans and got a couple credit cards. Basically he stopped buying and paid on what was his current debt. He finally managed to get back on his feet but it took him a while.

 

[Jambalaya]

Hello CFers!

Since you are a knowledgeable group, I wanted to pick your brains for a moment. I have a friend who has quite bad credit as a result of the recession. No, it's not me, although by saying that you'll all think it's me.

Anyway, what are the best steps to take to start to get his credit score back into shape?

I appreciate all advice!

Do NOT sign up with a credit repair/credit card counseling.

most people are ill-informed and think they can start fresh. These agencies DO NOT get you caught up with PAST-DUE balances. You have to do that.

Plus, these counseling companies are reported on your CREDIT REPORT. IT is one step below a bankruptcy in a lenders' eyes

--start with the small credit card balances, and concentrate on paying off the entire balance--and move up to the next highest balance, and so forth. small victories first

If your friend is not planning on buying a car or house in the next 5-7 years---then credit card counseling or bankruptcy might be a last-ditch option

 

[Scott34]

Do NOT sign up with a credit repair/credit card counseling.

most people are ill-informed and think they can start fresh. These agencies DO NOT get you caught up with PAST-DUE balances. You have to do that.

Plus, these counseling companies are reported on your CREDIT REPORT. IT is one step below a bankruptcy in a lenders' eyes

--start with the small credit card balances, and concentrate on paying off the entire balance--and move up to the next highest balance, and so forth. small victories first

If your friend is not planning on buying a car or house in the next 5-7 years---then credit card counseling or bankruptcy might be a last-ditch option

This is Dave Ramseys method that seems to work very well. Get rid of the small debts first that way you pay them off quicker. Then you can take the money that you were using to pay the smaller debt and put that on to you next smaller bill. Might be a good idea to put your bills in order from small to big.

 

[Cybyassociation]

That's one thing that I've always stressed to friends with credit cards.

3 is also really great advise, unused cards will actually show up as negatives on a credit report.

I'll add this: 4. If possible, pay your credit card bill in full, instead of at or just above the monthly minimum.

We actually just started this unit in my Personal Finance classes last week. Once a year I'll run my credit report to show my students. It's pretty cool because it'll show what I'm doing that is helping my credit score, what I'm doing that is hurting my credit score, and what I can do do boost my credit score.

Helping:

Paying my bills on time
Paying my credit card in full
Not taking my card to its credit limit on a "regular basis"

Hurting:

My "long term debt", aka my car loan
My credit history length

Things that will boost it:

Paying off my debts in full and on time
Paying off my car will help a lot

 

[longtimeclone]

We actually just started this unit in my Personal Finance classes last week. Once a year I'll run my credit report to show my students. It's pretty cool because it'll show what I'm doing that is helping my credit score, what I'm doing that is hurting my credit score, and what I can do do boost my credit score.

I think this is actually a good habit for people to do so they aren't surprised by anything and have time to fix errors.

 

[Cybyassociation]

I think this is actually a good habit for people to do so they aren't surprised by anything and have time to fix errors.

Absolutely. It can actually harm your credit score to run it too often, but once a year is fine. Its usually free also.