Cash, but no credit, Help?

[WinstonSmith]

Here's my situation:

 

I have a BofA CC closed in 2012 as Collection/ChargeOff with $3500 on it. This was when I was unemployed/trying to start my own business (had ~$20k savings that I blew through during that time).

 

Since then I've been living using a debit card, no CC's at all. Other than that one collection/chargeoff there are no baddies on my report.

 

My car was bought w cash: no auto loan. I've been living with my mom when unemployed, since then I've been living in at-will month-to-month housing off CL with no leases, and the past 6 months in AirBNB rentals.

 

Now my situation is much better: co-own a business, salary is $150k. I want to buy a house in ~1 year, so looking into repairing my credit.

 

Read a lot on the forum, but I am unclear on how to proceed:

 

Should I try to settle the ChargedOff debt, even though it was from 3 years ago? I talked to BofA collection and they are willing to settle for $1700. However, I read in multiple places here that this will have minimal effect. However I still have 4 year to go before this gets erased from my report.

 

I am thinking I should get a secured card, or perhaps multiple? Or start a CU account and get a card through them? I have about $28k in savings, which are currently in a BofA checking account - should I transfer these out to another bank ASAP?

 

FICO score is 556.

 

Someone IRL suggested I get an auto loan/pay on time - this should have a good effect on my credit?

[breeze]

Your state has a 6 year statute of limitations and you've told BOA you have money, so your best bet would be to settle if they will report it as satisfied or paid in full, settled for less than owed. You're right, it is not going to improve your score, but it will keep you from getting sued and then having a judgment on your record.

 

Then, yes, get a secured card. Some of the other members here can recommend the best way to rebuild. Read some of the success stories - you can do it, plenty of people have, and they'll help you. .

[mendelssohn]

BOA will not delete, but you may be required to pay it for a mortgage anyway.

 

Don't bother with installment loans. You want to add 3 credit cards if your goal is a mortgage in a year.

 

I'd suggest that first you open a secured CC with SDFCU. They don't graduate the secured card, but there is no credit check. They do look at Chex. Since you have a good income, this is the opportunity to fast track your credit building. Put down as large of a deposit for the CL as possible. They go up to $100K, but that would be overkill. If you could do $5-10K, that would help you down the road when you start applying for other cards.

 

Once the SDFCU card reports, check with Cap1 to see if you have any prequalified offers. If you don't, just apply for one of their entry level unsecured cards. You can PC the card later and ask for an AF waiver if it has an AF.

 

For card number 3, try Discover, US Bank and Wells Fargo. All 3 of those graduate to unsecured after your credit has improved. In order to get the Discover, you need to apply for the unsecured card and if you are declined, they may offer you the secured version. Try to put down a decent deposit on this card as well.

 

BOA has a great secured card, but since you recently burned them I would not suggest going that direction.

 

If you are eligible for NFCU, join and apply for their secured card for card number 3.

 

During the next year (and always IMO), don't ever carry a balance on your credit cards. Let a small single digit balance report at the statement date on 1 card and make sure you pay the rest to $0 before the statements close. This will ensure that you are getting the most points for utilization in your FICO scores.

[cashnocredit]

I would NOT open a secured card or look for any other type of credit until you get the BOA debt resolved. You are now in the best negotiating position you will ever be in since you do not look attractive to sue. Secured cards, especially higher limit ones, send up a flag you have assets and that makes it more likely you will get sued and they won't settle for as low a number.

 

Try for a PFD or settle it. As soon as that is done, but not before, take out a couple of secured cards with as high a deposit as you can. Get cards that will unsecure automatically.

[muckymucks]

Your state has a 6 year statute of limitations and you've told BOA you have money, so your best bet would be to settle if they will report it as satisfied or paid in full, settled for less than owed. You're right, it is not going to improve your score, but it will keep you from getting sued and then having a judgment on your record.

 

Wouldn't making a payment on a collection renew the life of that entry? The OP said he has four years left until the baddy gets removed from his credit reports. If s/he makes a payment the baddy gets renewed so the cycle begins all over again. That's what I've read. Best to let the past be the past and let time take care of it.

[mendelssohn]

 

Your state has a 6 year statute of limitations and you've told BOA you have money, so your best bet would be to settle if they will report it as satisfied or paid in full, settled for less than owed. You're right, it is not going to improve your score, but it will keep you from getting sued and then having a judgment on your record.

 

Wouldn't making a payment on a collection renew the life of that entry? The OP said he has four years left until the baddy gets removed from his credit reports. If s/he makes a payment the baddy gets renewed so the cycle begins all over again. That's what I've read. Best to let the past be the past and let time take care of it.

 

 

If you PIF/settle in full it never resets the reporting clock.

 

That will most likely need to be paid off to get a mortgage anyway.

 

A charge off with a balance also counts against your utilization and will keep your scores low.

Edited July 25, 2015 by mendelssohn

[cashnocredit]

 

Your state has a 6 year statute of limitations and you've told BOA you have money, so your best bet would be to settle if they will report it as satisfied or paid in full, settled for less than owed. You're right, it is not going to improve your score, but it will keep you from getting sued and then having a judgment on your record.

 

Wouldn't making a payment on a collection renew the life of that entry? The OP said he has four years left until the baddy gets removed from his credit reports. If s/he makes a payment the baddy gets renewed so the cycle begins all over again. That's what I've read. Best to let the past be the past and let time take care of it.

 

 

No, no, no!. Where on the net did you get that. It's dead wrong. Neither partial payments nor settling for less that the balance reset the reporting clock. They may, depending on the state you live in reset the SOL for filing a lawsuit.

Edited July 25, 2015 by cashnocredit

[SunnySideUp32]

If I am not mistaken, Bank of America has the right to offset your delinquent debt by taking the money from your checking or savings account. Since you bank with them and they are willing to settle for less than owed, get it in writing and jump on that offer quick.

[cashnocredit]

If I am not mistaken, Bank of America has the right to offset your delinquent debt by taking the money from your checking or savings account. Since you bank with them and they are willing to settle for less than owed, get it in writing and jump on that offer quick.

 

Good point about him having an account with BOA already. I'm surprised they haven't sued already. Left hand let me introduce the right hand. There are limitations on right of offset but it isn't really germane under the circumstances.

Edited July 25, 2015 by cashnocredit

[breeze]

Oh wow! I completely missed that. They could just take your savings. Move that money before you do anything else. BOA must not be paying attention - but they will. I agree! Move the savings, then negotiate the settlement. Then get the cards. Make sure BOA agrees not to sell the unpaid balance or come after you again. They will send you a 1099C for the amount they forgive. You can deal with getting your score up later. You need to deal with this BOA debt before you do anything else with credit.

[cashnocredit]

Oh wow! I completely missed that. They could just take your savings. Move that money before you do anything else. BOA must not be paying attention - but they will. I agree! Move the savings, then negotiate the settlement. Then get the cards. Make sure BOA agrees not to sell the unpaid balance or come after you again. They will send you a 1099C for the amount they forgive. You can deal with getting your score up later. You need to deal with this BOA debt before you do anything else with credit.

 

Breeze:

 

Regulation Z, which BOA does fall under unlike a lot of local banks, 226.12(d), in general prohibits right of offset for CC accounts but not for things like OD LOCs.

 

The bigger factor is that with that much money in a BOA account the OP is waving a "sue me" flag. Apparently the CC division just looks at his credit report and decides it isn't sufficiently collectable. I can't imagine they would settle for less if they knew that.

[breeze]

 

Oh wow! I completely missed that. They could just take your savings. Move that money before you do anything else. BOA must not be paying attention - but they will. I agree! Move the savings, then negotiate the settlement. Then get the cards. Make sure BOA agrees not to sell the unpaid balance or come after you again. They will send you a 1099C for the amount they forgive. You can deal with getting your score up later. You need to deal with this BOA debt before you do anything else with credit.

 

Breeze:

 

Regulation Z, which BOA does fall under unlike a lot of local banks, 226.12(d), in general prohibits right of offset for CC accounts but not for things like OD LOCs.

 

The bigger factor is that with that much money in a BOA account the OP is waving a "sue me" flag. Apparently the CC division just looks at his credit report and decides it isn't sufficiently collectable. I can't imagine they would settle for less if they knew that.

 

 

Thanks for that tidbit. I agree, either way, if they put 2 and 2 together, they would not settle for less than owed, and I've had some dealings with them when Mom died. They are harsh.

[JeffeVerde]

I was in a similar situation a year ago - a few old baddies, but no recent good credit to offset it (hadn't used credit in 5+ years). I did the secured card thing - putting $10k on one. After 3 months, I was getting approvals with $5-$10k starting limits, and at 9 months I broke $100k in CL's. With that CO showing PIF/satisfied (or even better deleted - but not likely with BofA), and a year of good payment history, you may not be in prime rate territory - but at least the underwriters won't laugh when they pull your reports .

 

Also- like you, buying a house is what started me on my credit rebuilding. When I got my mortgage, I had several old (unpaid) CO's -- but they became a non-issue when I mentioned my $200k down payment.

Edited July 26, 2015 by JeffeVerde

[WinstonSmith]

Thanks very much all for all the responses!

 

So the consensus seems to be that I need to clear the BofA thing no matter what then go the multiple secured card route.

 

What are good secured cards to put like $10k on? SDFCU was mentioned, but I have no affiliations to the government, not sure if that matters.

 

Also, is getting an auto loan not a good option right now?

[cashnocredit]

Thanks very much all for all the responses!

 

So the consensus seems to be that I need to clear the BofA thing no matter what then go the multiple secured card route.

 

What are good secured cards to put like $10k on? SDFCU was mentioned, but I have no affiliations to the government, not sure if that matters.

 

Also, is getting an auto loan not a good option right now?

 

No. With your current scores you could get an auto loan but at very high interest rates so you would be out a lot of money. Also, auto loans do very little to improve credit scores. Credit cards are, by far, the largest positive factor for high scores in a credit report. So much so that just getting a credit card when you have none will generate big score increases. For the best increase get 2 secured cards immediately then one or two unsecured cards a few months later after you have used and paid fully the secured cards and had that report to the CRAs for a few cycles.

 

BTW, I've learned to love big brother. Sort of.

Edited July 26, 2015 by cashnocredit

[WinstonSmith]

Thank you, cashnocredit.

 

Would you recommend a national one like Cap1? Or a CU?

[mendelssohn]

Thanks very much all for all the responses!

 

So the consensus seems to be that I need to clear the BofA thing no matter what then go the multiple secured card route.

 

What are good secured cards to put like $10k on? SDFCU was mentioned, but I have no affiliations to the government, not sure if that matters.

 

Also, is getting an auto loan not a good option right now?

 

Yes, multiple secured cards expect maybe Cap1.

 

You don't need a government affiliation to join SDFCU. Anyone can joing.

 

Only get an auto loan if you need it. An installment loan will not help your FICO scores used for a mortgage once you have credit cards reporting, and there is no reason to pay interest if it isn't necessary.

[cashnocredit]

Thank you, cashnocredit.

 

Would you recommend a national one like Cap1? Or a CU?

 

This is a master thread on secured cards. Look for ones that graduate. I was in a similar position 6 years ago and I started off with a WF then Citi secured cards. They graduated and left no trace on my reports that I ever had a secured card.

 

https://creditboards.com/forums/index.php?showtopic=500689

[JeffeVerde]

Read the secured card thread that Cash posted. With your current scores, you might not have the option of being choosy, but ideally you want a card that "graduates" (converts to an unsecured after x-months) and that doesn't report as "secured".

 

If you have any way of qualifying for Navy Federal, they're a very good credit union to work with, and IMHO, they have absolutely the best secured card out there (doesn't report as "secured", graduates, and you can increase your credit limit at any time by increasing your deposit). Wells Fargo is good - but they can be choosy about who they accept (which makes no sense, given that it's a secured card - duh).

 

If you qualify for NFCU, I'd make that your main working card. If you can't get NFCU, check your local credit unions - generally CU's are much more obliging than the big banks and CC's. If you can only get one "good" card, even a crappy $300 Cap1 is fine for cards two and three - your objective is to get three CC's (MasterCard or Visa, not store cards) reporting monthly (3 seems to be a sweet spot for FICO.)

 

Once you've got your new cards, the number one rule is NEVER BE LATE. When you're applying for a new account and you want to maximize your FICO's, you'll want one account to report a $2 balance, and the rest to be zero. But when you're not in the process of app'ing, you don't need to be anal about zero-balance statements (although it's not a bad habit to get into). FICO scores aren't affected by historical utilization - they only look at current utilization.

Edited July 27, 2015 by JeffeVerde