How Best to Repair Credit Score After Foreclosure Repo and Default
Hi Michael, I recently decided I was going to tackle my husbands bad credit myself. Unfortunately, like so many, I do not have the best idea where to begin. Below is a breakdown of the situation I am trying to resolve as a DIY-er. Anxious to hear your thoughts.
Background: Lost job due to sudden company wide lay offs. Was the only income for our family at the time. The lay off caused a relocation, which in turn felt like starting from square one. We now have a two income household, which we hope will allow us the flexability to rebuild. Because my husband was the only one working at the time everything financed was in his name, only. We currently have everything that requires financing in my name...
Events (not in any particular order):
Forclosure of home: July 2012
Reposession of cars (2) November 2010
Credit card debt: We had 7 open revolving lines of credit, all of which are now in bad standing.
Student Loans: (2) I have recently contacted Sallie Mae and committed to a repayment plan.
Current Score: 540
Goal Score: 650
Let me know if you would like any further information. I look forward to hearing back from you. I figure there is no better time than now to at least get a game plan and start making steps in the right direction.
Is my situation far to much for the DIY-er?! Do you think we have a chance of bouncing back?!
—MelissaD
Recovering from a temporary financial setback (not that the years you endured could be called temporary), and repairing your own and your husbands credit score, is possible. You can have better results going about your own credit repair, than by hiring someone. The number one ingredient you will need is patience, sprinkle in the resources to resolve old unpaid bills in collections (when it makes sense to do so), and a dash of know how – and you are on your way to recovering your credit score. Well… at least getting to your goal of 650. First thing I want to address is the patience part.
How quickly can you repair credit on your own.
There are going to be different circumstances for each person trying to repair their credit. Someone with one or two negatives, set beside several positives, will have an easier go of repairing credit and increasing their score. And can often see fairly rapid results. Compare that to someone whose credit report is weighed down with more negatives than positives and you need to have a patient perspective. Measured in time that will often mean 24 months and more. And given the information you shared, that is going to be the case here.
Negatives on the credit report tend to have the heaviest impact the more recent they occur. 24 months after a negative appears on your credit score – the damage is going to have less of an impact. With that in mind, I will size up your situation with some general feedback.
Foreclosure on your credit.
That foreclosure will have less of an impact starting next summer. There is not much you can do about that at this point. So using the next year to improve other areas should be the goal. If you can clean up much of the other negative reporting you could find yourself in a position to get a new home loan approved (if you enter the market that soon) with in 2 years from now.
FHA underwriting standards for home loan approval have pretty low credit scoring thresholds compared to other lending standards. But you can need 3 years separation from a foreclosure or short sale event in order to qualify.
With the new qualified mortgage rules, that will take affect at the beginning of 2014, you would need to handle all of the collection accounts and get them to reflect zero balance owed in order to improve your chances of getting approved for a home loan. This is because of the debt to income ratio that will soon be required to be met in order for loans to meet Fannie and Freddie purchasing.
Car repossession on your credit report.
The car repossessions happened nearly 3 years ago. That means the credit impacts could have lost some potency. But that would be more applicable if there were only a few negatives compared to many more positives on your husbands credit report. In other words, those 2 defaulted auto loans do not exist in a box. Dealing with those alone will not improve the credit score overall because of the other things that are weighing him down.
Auto loans that go unpaid, and cars being repossessed, result in the cars getting auctioned. More often than not the auction price paid will be less than the loan balance that was still owed. The auction price will get subtracted from the loan balance and any amount on the loan left over is referred to as a deficiency balance. The finance company will typically make some initial attempts to collect on the deficiency balance by making a couple collection calls, and sending a collection notice or two. But their collection efforts are often quickly turned over to outside collection agencies. The unpaid debts from repossessions are also bundled up and sold off to debt buyers.
At this stage (after 3 years), you probably will see the auto loan default and charge off, but could see other negative credit reporting from a debt collector or debt buyer. Settling the deficiency balance can often be accomplished at a pretty good savings, and the updates to the credit report that the balance owed is zero will help improve the debt to income ratio, just not the credit score immediately.
Who are the last known collectors on any deficiency balances from the repo’s? Are there any additional negatives on his credit report (besides the original reporting by the finance companies)?
Defaulted Student loans on credit report.
When you default on many student loans, you limit your options to consolidate them into more affordable monthly payments, or to qualify for income based repayment plans. You have to bring the loans out of default in order to again qualify for better payment options.
Similarly, you often must bring student loans current, or out of default, in order to improve how they appear on the credit report. This will often mean getting set up on payments, which you indicate you have already done, and also making several monthly payments (often 6 or more), on time.
Was there any part of your conversations with Sallie Mae that involved the benefits to credit reporting once the loans were brought out of default and timely payment being made for a certain period of time? How long have you been making the new payments you set up?
Credit reporting and credit cards in collection.
Unpaid credit card bills that go 180 days without payment get charged off. If you can get a payment plan set up with the banks before that happens, or even settle the balance for less than what you owe before the accounts charge off, you can mitigate a little bit of the damage to your credit. If all 7 of the accounts have charged off already, there is little to be done about that. But you can start to bounce back from that by resolving the debts now.
Once credit cards get charged off they generally will get sent to third party debt collectors for further collection efforts, or sold off to debt buyers, who may add additional collection accounts on your credit report. Some banks (and debt buyers) place collection accounts with attorneys. This can lead to being sued. If a judgment goes against you, that fact will appear on your credit report with a whole new 7 year shelf life. That said, I have some questions about the credit card debts.
- When were the last payments made on the accounts?
- Who were the original creditors? Who is collecting on the credit cards now (if you know)?
- If the credit reports are showing the original creditors as charged off, but with a zero balance owed, it nearly always means the debts were sold. Are there any collection accounts showing up that you can tie to the original credit card banks?
- Are there any attorney collectors trying to collect on any of the accounts? If so, are any of those attorneys located in the same state as you are?
- If you were to approach your credit repair efforts by methodically and strategically resolving old debts one by one, how much can you commit from your monthly budget consistently? Can you tap any lump sum resources in order to be more aggressive with resolving the debts?
Making progress with your efforts to repair credit is going to take time, but from what you have shared, if you have credit goals with a 1 to 2 year view, and can apply resources to this, you can meet your goals. There are alternatives like bankruptcy that may make more economic sense, but I will save that for some comment feedback after you post answers to the above questions.
Anyone looking for feedback about repairing credit after experiencing a tough financial setback is welcome to post in the comments below for feedback.
About Michael BoveeMichael started CRN in 2004 with a mission to provide people in need with detailed debt and credit help and education. Michael has participated as an expert panelist in federal consumer protection rule making, collaborated on state law changes governing debt consolidation, has worked as an expert witness in court matters related to the debt relief industry, and is a regular contributor to several personal finance websites.
I have two car repos back in 2011. I also have a medical bill for around 600 dollars. I had defaulted students loans but my federal taxes were taken for that 2 years ago, so the student loans are now paid. I just got a secured credit card and am trying to rebuild my credit, haven’t had a first payment for it yet. What should I do to rebuild my credit the fastest way? I am trying to get a home loan ASAP.
List the balances still owed on the repo’s and who is collecting them (if you know).
Do you know your credit scores as of today?
I have two major Issues regarding my credit report. ….
The first issue is regarding my mortgage. My husband and I refinanced in 2006. The original refinance lender sold the loan to Countrywide within a month. Bank of America took over the mortgage when Countrywide folded. When the economy took a dive (my husband was laid off), so did our finances and we were nearly foreclosed in 2012. B of A sold the mortgage to Seterus in December 2012. Later in 2013, we still had financial difficulties and applied to HARP to refinance. Since 2014, there are no missed mortgage payments, but our credit profiles are not good………
**The issue is that the credit reporting agencies list the original mortgage company, B of A and Seterus listed as originating the loan in 2006. My husband and I never had more than 1 mortgage company.
B of A sold the loan to Seterus in December 2012, and we started paying Seterus in January 2013. Why does our credit report show B of A and Seterus as beginning the mortgage in 2006? It looks like we have 3 lenders at the same time, when we never had more than 1.
**Issue number 2 has to do with A debt that Midland Funding Collections bought two years after Care Credit charged off a medical payment that I charged onto their card. Because I was having major financial stress issues, I developed “head in the sand” syndrome. I ignored all phone calls and letters by creditors and collapsed into just concentrating on saving the mortgage.
When Midland bought the charged off account, the amount owed had already ballooned. The credit reports say that I owe over $5,400. I think that Over 60% of the amount that they want is accumulated interest. I had no direct contact with Midland. I recently disputed the Midland account through Credit Karma, because I didn’t know what it was at the time. In January, I looked at Credit Karma again and nothing good changed regarding this debt. I want to send a debt verification request to Midland, but I don’t know if I am shooting myself in the foot.
My question is, how should I proceed? I don’t have $500, let alone $5,400 to pay a collection agency right now. I have a number of other creditor derogatories, but the:
1) “multiple mortgages” and 2)Midland Funding are the biggest issues. Midland Funding and most the others are medical debt I need to clear up everything in order to be able to qualify for finance a car.
If the BofA mortgage entry on your credit report is showing anything negative, what is the most recent date of the negative (month of a late payment)?
When did you stop paying on your Care Credit account? That debt buyer, Midland Funding has a new credit reporting policy, and that could help you if/when you are ready to settle it. I do see good settlement deals with them.
28yr old mom of 3 boys. I have a repo for my vehicle on my credit with a zero balance. They got more for it than what was owed. I just consolidated my student loans which were only $3k I’ve got a cellular bill and a cable bill on my credit. My score is 430. I pay everything on time. I’m trying to get another car and buy a home but don’t have any idea where to start. I work full time and make good money so I know I can afford one. Down payment is an issue though. I don’t want to do credit cards at all. Where should I start to raise my score to buy a nice home and rebuild my credit?
If your main goal is home ownership I would look for a savvy independent mortgage broker in your area that has FHA experience. You can get an FHA loan with less than a 600 credit score, and some good hardship talking points, as long as you have no unresolved debts.
You will want to resolve anything unpaid.
Getting a car loan and paying on it for 6 to 12 months will go a long way.
Do you rent now? From a property management company or an individual?
Hello I’m trying to rebuild my credit I had a c edit card from a bank cl of 1,000 …due to financial struggles I maxed it out to 800 and couldn’t pay its been around 14months . What can I do now my score is in the low 500s…… oh and I accident,y closed off a chase cc recently … what can I do to rebuild my credit I recently got a secured card from wells fargo
What accounts do you have showing as positive on your credit? What accounts do you have showing negative?
I have two car repos on my credit from 2011. I have medical bill for 500 dollars on my credit. I had student loans but two years ago my federal check was taken and that was paid in full, but Is still showing up on my credit report with 0 dollar balance. How can I rebuild my credit from the 540 credit score to good credit?
If those collection accounts remain unpaid, settling them would help. The repossessions sound like they will come off in 2018. If those deficiency balances are large, it may just be best to wait for those to fall off rather than settle.
In the mean time you may want to look at setting up a secured credit card.
What goal are you looking to achieve, and when, with the improved credit?
I am trying to buy a house within 5 months.
Hello,
My husband and I are thinking of giving our SUV back to the finance company. The SUV is solely in his name. We only have 1 income right now, which is his. He has 4 credit cards that are in good standing on with a high balance on all. We plan to pay those balances down soon. How would this voluntary repo affect his credit and how long do you think he would have to wait to purchase another vehicle and a home? Also, we filed bankruptcy in 2012 and that’s due to be taken off our credit in about 2 years.
Hard to say how the Repossession will impact his credit score. But you can get FHA financing with a 620 (even as low as a 580). You will want to have any deficiency balance that may result from the repo settled before applying for a loan.
Getting a new car loan after having a repo is not too hard at the time I am replying to you. I have worked with many people who waited a year or two and had no problem (but had no unsettled debt on their credit).
Hi Mike,
My wife and I came to a realization after a few untimely medical bills that we needed to look at other options for our debt. We were only making minimum payments, and treading water. We decided to go the route of a company to settle our debts for us. We figured we were at least trying to do the right thing. We were very uncomfortable about ‘not paying’ our credit cards, as advised by the representative. We are still in this program, have paid off (2) credit cards, but a 3rd credit card sued us. We were represented as part of our agreement by a litigation firm, and agreed to a settlement. Fast forward 5 moths later, and the settlement went null & void as I was laid off from work, and was unable to keep up with the payments. Next up, our bank account was levied for the amount owed. Obviously they got very little because we didn’t have the funds.
At the moment, I am currently working with the Collection firm representing my creditor to work out a plan for repayment. But I am worried because now we have a judgement showing up on our credit report, as well as 4-5 charge offs.
Luckily we do have 2-3 other credit cards open that we rarely use, very low balances, and pay on time and are in perfect standing.
I know the judgement and charge-off will stay on our credit for 7 years. What is the best way to repair our credit (without bankruptcy), and a realistic time frame until we can improve the scores? 7 years? We’re currently in the mid 500’s. No bankruptcy or foreclosure on our reports. Charge off’s and the judgement are the worst factors, other than the late payments. Yuck.
Any advice is greatly appreciated. Thanks very much.
Very disgusted with our situation.
You are likely looking at 12 to 24 months of rebuilding your credit after the last settlement is done. Payment plans will not update to your credit reports as a paid or resolved collection account. Try top get everything knocked out as quickly as possible as you bounce back and are back to work.
HI,
I have an auto loan with NFCU, and I have 7 negative reporting months. 3 (30 day late) 3 (60 day late) 1 (90 day late). The latest was 30 days late in July. Prior to that it was Feb, Mar, April of this year. The ones prior to that were Sep, Oct, and Nov of 2015. I was separated from the military when they had to get rid of a lot of people and I struggled finding a steady job afterwards. I now have a permanent job where I can make every payment on time. Is there a way to have these negative reports cleared up if I pay consistently for a year? It is the only negative thing on my credit report. I still owe 34,000 on the loan and I have 102 monthly payments left.
NFCU is not going to be open to removing those late pays. But time will help you bounce back from being late, even if that is still on your credit reports.
September of last year I received a trust fund and decided to work on my credit. It’s been a slow start but has come to the time where I can really pick up speed. At first I worked on keeping my account above water and establishing a pattern of healthy habits. The next step I took was opening a secured card directly through my bank with a small limit of 300. I have a credit history of one year and three months which is hard on my score but in the time frame where the age is negative towards my score but each month is more and more positive and has finally turned into a fair amount of time becoming more beneficial. The age of my credit card is 1 yr 1 mth. I have zero late payments and have a utilization of 6 of 300$ on the last update. I have tried to make sure each updating day that the account was fully paid at first and then after learning that having a small utilization amount was a good thing each week I would make sure it was paid up to leave only a small amount and each month the bill was paid up before hand. This was simple due to the card only being an extension to my daily amount. My limited opportunity account has a low cap on my debit card each day and when needed I would charge the credit card the full 300$ and instantly pay online and use again when buying things that were more then the daily amount allowed to my debit card. So most times I used the card it was for things that required me to pay it off and recharge the remainder, ex a purchase of 345$ the 300 was charged and paid and 45$ was charged, so card utilization was shown, Payments were early and on time and no interest had ever had to be added. The only things really bringing my score down are that I only have the one open account so that’s a negative effect each month that’s not changing and the few derogatory remarks. I wonder how to accumulate more open accounts. Now that my score has grown from around 428 to 650 I am able to apply for more credit cards, real unsecure cards will be a more beneficial account to have and now it’s an option with a score that makes me eligible but I wonder how good my chances will be while filling out the application due to the fact that when it asks about employer and income I have nothing to put on there other than Im unemployed and i have no definite amount for my yearly income. Can I just put down what I withdrew from the trust last year as my yearly income and say self employed or do they look into it enough to verify it? And what’s the best way to pay accounts in collections? I have a Capitol one debt from a secure card in 2014. I simply stopped using the card one day when the balance was 0 and they sent it to collections for 171$. I didn’t cancel the card or owe money so I can only think there was some penalty for not using the card for a period of time but don’t know. Should I look into why this charge accumulated and dispute it or should I just pay it. I assume I have to contact capitol one to find the specific reason and then the collector not capital one to pay it. If I decide to just to call right now to pay it should I haggle the amount down and if whatever is agreed do they automatically contact capitol one and let them know and will it then be automatically removed from my credit account helping the score go up. Also why is it only on my Equifax and not trans union? Will it affect both scores. And why are some things only on one credit account and some on both and some things show as the same thing and amount but from different collectors and then some show all the same info and two times on the same account. Also of all derogatory remarks one is capitol one, one is sprint, which I consider true but the rest are mostly hospital bills. Is either one more harmful or once sent to collections I’ve noticed sometimes the hospital bills have been removed on there own but Im not sure if they get replaced or if they are removed for good after a period of time. Is it harmful to haggle down and pay the account off at a low cost instead of paying the full asking amount when they report it to the original company and is it better to make payments or straight out pay full amount?
I would file a credit reporting dispute over the Capital One account. Depending on the outcome, I would then pay it off. Settling that small a balance to save money is not all that common. Capital One is not going to remove the item from your credit reports.
I would settle the sprint account and get it updated to show paid.
I would settle the medical bills for a savings wherever possible. Check out this video about negotiating medical debts before you get started. Paid or settled medical collections do not hurt your credit like they used to. And once an account is to the point it is with outside collection agencies, there is not much of a difference between the account being updated to show paid in full, or settled for less, so I would go for the cash savings.
It is normal to have some things show on one credit report and not the other. The credit bureaus do not share with each other necessarily. They rely on the furnishers of the credit information to push the information to them. Capital One, or others, simply may not be pushing that information to all credit bureaus.
Hello Michael, thank you for all that you do! I’m afraid I am making mistake after mistake and not sure what else to do and came across your posts in google. We entered into a credit counseling program and AMEX Platinum was one of the accounts accepted. The account was current/never late when entering the program. The account had a debt of 17,000 for which AMEX and the credit counseling program agreed upon a monthly payment plan to repay that amount as listed for the full amount). Come to find out AMEX had the debt in 2 different buckets, the 15,000 pay over time bucket and the 2,000 pay now bucket. Although they never reached out to us once looking for payment, nor sent it to collections (and we didn’t catch it as were we naive and trusting), they flagged the 2000 as delinquent and finally a write-off/charge off (even though the money they received through the credit counseling program they applied to that debt 1st and they marked it as write-off once the debt was paid in full). The credit reports show AMEX payment history as either “good” or “NR” across all 3 reports over that time. I have filed disputes with all 3 bureaus, called the credit counseling program coordinators and have been calling AMEX non-stop… I’m not getting too far… AMEX agrees something is off depending upon the dept, credit counseling is basically “sorry, can’t help”. The early return on Experian shows “remains” with Outcome: Remains, Results Due: 11/27/2016. Calling AMEX CVR or CBR, (not sure which it is) multiple times has gotten a manager review who has now added to the notes it has been passed to the concerns dept? where he is waiting for AR/AP line items for further review. I keep getting “call back in 2-3 days from them” and I feel like I’m against a clock that I don’t know what happens when time runs out. I have a 30 year credit report and this the the 1st/only negative on it, from trying to do the right thing no less… and although I now finally understand why it happened, I don’t think it is right and hope to have it reversed. Any ideas?
~B