Repair/Restore/Fix my stained credit reporte and score.

Question

I have made a decision to purchase a home in the near future. Sadly, I made a few errors regarding utilizing credit. At this time, I do not have credit cards and have not had a revolving account for more than two years. What I do have is a car payment that is never late, student loans that are in good standing (never late), BUT plenty in collections (medical mostly) and an old balance with Discover that is 5-6 years old. My credit score is near 600 yet still far away.

I want to pay off the very small balances. The larger ones I prefer to settle. If I settle, how would this reflect on my credit report and score? Also, would it be a smart move to open a secured credit card so that I have an active revolving account? How would a lender or a financing corporation view my credit if these payments have only been made recently or does that matter?

Any advice or suggestion is greatly appreciated. Thanks!!!

Answer 1

If you settle, more than likely it will have an adverse effect on your credit.  Most of the time it will be disclosed as some sort of settlement, rather than 'paid as agreed'.  Each one is different so it's hard to say, but that should be part of your settlement, that it will be reported as 'paid as agreed'.  Work with those creditors (who agree) first.

You should definitely have a credit card or two, because open and active credit lines enhance your score.  A secured card will likely be reported as such and will not have the same benefit to you as a normal, unsecured card.  If you can't get an unsecured visa/MC, try a department store card or gas station card as they are easier to get.  If that fails, go to your bank (preferably local bank), explain you are trying to build up credit, and ask them to give you a credit card.  In return, you will deposit some money in a CD in their bank.  This way you get the same thing, but without it being reported as secure.

A new lender will look at the recent nature of the event as most important.  Your score is always the first place they start, and then they will look at trends.  Keep in mind that for homebuying purchases medical bills are not treated the same way as other consumer debt (they do not count against you as much, although they do effect your score equally).

More than likely you'll be getting a FHA loan, so find a good broker to work with and get detailed instruction from them.

Answer 2

If you just pay the stuff off, you will be out the money AND you will have bad credit.

You need to request validation from the collection agencies and dispute those accounts with the credit bureaus. See what remains after that and then try to press for a pay for deletion agreement.

Negotiate everything in writing and your credit will improve substantially.  

Answer 3

It does not matter if you settle.  It will still show as a negative for 7 full years.

Most mortgage companies won't loan money to people with bad credit, because the collectors could put a lien on the property.

Pay it off.  Your score will improve as time goes by.

Scores, for the most part, are based on the last 24 months of credit history.

So, while paying off that debt, you must rebuild your credit too.

Visit this message board for lots of free info and help.

http://www.creditboards.com/forums

Answer 4

The mortgage market is very tight right now and, from what I'm hearing, anything less than absolutely stellar credit and a 20% downpayment will not qualify for a mortgage. Your credit score is far too low to qualify for a mortgage. The negative items will remain on the report for 7 years. Until they are gone, you will have problems. A secured card is useful. It is more useful if it does not indicate "secured" on your credit report.