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Dump all Credit Cards and keep a few to rebuild with?


RogerDodger
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An acquaintance  was just approved for a mortgage loan about 18  months after he quit making payments on all of his credit cards walking away from close to $100,000 in debt.  Some Mortgage companies do not hold unpaid against someone provided it is more than 1 year old and they have rebuilt their credit score.  

He totally quit paying about 25 accounts he had with Barclay, Capital One, Citi and Synchrony.   After 8 months he hired a Credit Repair company  although I am not sure what they did.  He had simply walked away from the debt.

He  kept a handful of cards from banks unrelated to the ones he quit paying with small limits and kept them paid every month with less than 20% of his limit owed.  About 18 months after the first 30 day late hit his report, never making another payment, he had a mid-score of 627 and was able to qualify for a  home loan with none of the uncollected/unsettled dept considered.

That's the story he had and I saw his 3 reports and it seems to support it.

How far fetched does this sound?   What am I missing?  I can't believe it was easier to accomplish than doing a Chapter 7 which I've seen people recover from inside of a year and buy a home in 2 to 3 years time frame after the discharge.  

I have been considering Chapter 7 to deal with about $70K of CC debt after my income was reduced by over 50%

 

 

 

 

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27 minutes ago, RogerDodger said:

How far fetched does this sound?

VERY far fetched.  

27 minutes ago, RogerDodger said:

What am I missing?

First:  if he paid a "credit repair" company then he is dumber than a box of rocks because ANYTHING they allegedly did he could have done on his own for free.

Second:  Those accounts have to have read "settled" or zero balance some how because NO underwriter is going to do a mortgage with that much unsecured debt still well within the SOL that could become liens on the property.  Scroll through threads on any credit forum and you will find hundreds of posts from people who are trying to qualify for a mortgage and their broker is telling them they have to take care of a single collection to get approved.  Chances your buddy got approved with $100k of defaulted debt after one year:  ZERO.

Third:  even if he did somehow manage to qualify for a mortgage the interest rate with a 627 FICO was far from prime.

Fourth:  if he started defaulting on larger cards it is almost guaranteed that the other creditors would have closed his accounts to lower their risk he defaults on them.  

NONE of his story sounds true.

27 minutes ago, RogerDodger said:

mid-score of 627 and was able to qualify for a  home loan with none of the uncollected/unsettled dept considered.

Horse manure.  Mortgage underwriters consider everything on a credit report before they approve handing over mid-six figures to buy a home.

27 minutes ago, RogerDodger said:

I have been considering Chapter 7 to deal with about $70K of CC debt after my income was reduced by over 50%

You should speak to a few qualified BK attorneys to discuss all your options for handling your debt or you could simply be a professional deadbeat like your friend and attempt to walk away from it.  Heaven knows there are plenty of message boards where people will advise you on how to do that.

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@RogerDodger

As @Clydesmom pointed out, "credit repair" companies are a waste of money due to the fact that consumers can do the very same things on their own.   Many consumers don't realize that fact and those companies certainly will not inform consumers that they can take the same steps without employing those companies.  

Some states require credit repair companies to be licensed but many within those states will be unlicensed.   Also, not all of those businesses really know and understand consumer laws.  Here's an example:

A year or so ago, a "credit repair" company showed up on this site claiming that speaking with a collection agency is an "activity" that changes the "date of last activity" on your credit report for that account and resets the 7-year reporting period.  In other words, speaking with a collection agency would cause the account to be reported another 7 years.   NONSENSE!

Even after being shown the precise language in the Fair Credit Reporting Act and court rulings that disproved his claim, the idiot kept on spouting nonsense.   He had a credit repair business but didn't even know and/or understand one of the most important consumer laws related to his business.  If an owner or employee of a business doesn't know the laws related to his business, run the other way.

The majority of members here are not attorneys or financial experts and don't pretend to be.   Our information is based upon our experiences.   Any claims we make can and will be supported by law and/or court precedent.   If a member can't support a particular claim, it will be made known that it's merely an opinion.

Be very wary of ANY site (business or information) that make claims as facts but can't support them with law and/or precedent.

 

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@Clydesmom  Your response to my statement and question  is phrased in a rather combative tone so I will not respond  point to point to your  claims, however, they are not factually correct here in Texas in regards to liens  attaching to primary residences,  the need for "settled" accounts in qualifying for a mortgage or implying that rate might be prohibitively high due to a 627 score unless you consider 4.375 to be "far from prime". In regards to the "story" all I can say is I know the facts are accurate in regards to his current scores and unsettled accounts (saw his credit reports) as well as his just closing on a new home.

@BV80  Thank-you.  I am aware of the ability to both negotiate settlements and file disputes without the need to hire someone and if I choose to not utilize the BK  route I have  every intention on educating myself and handling things on my own.

To restate  the question I am looking for information on.....  Assuming I decide to  take the route of negotiating settlements on my own  I know

a ) To get Creditors to the table to consider a settlement I need to quit paying them and see my score trashed over the next few months.

b ) I need to put together enough cash to make settlement offers.  I believe I can be in a position inside of 6 to 9 months to start negotiating and would be looking to settle with 40% to 50% of what was owed.

c ) Pressure and/or stress will not be a factor for me.  I know I can handle it.

d ) I need to be able rebuild my credit score.    

It is the rebuilding that credit score part that leads to the questions I have.  I have a couple of small department store accounts and a couple of Visa/MC  accounts that are 10+ years old, perfect pay and $500 to $1200 Credit Limits that are not related to any of the institution I want to negotiate down.   If I make some purchases and keep paying on them throughout the process I was hoping I would not see them simply closed.   Closing them kind of encourages a person to take the same approach to them and would be counter productive right?   But I have no idea what the institutions would actually do.  Anyway... Older accounts kept open and paid would have to have a more positive effect than new secured accounts started a year from now.    I also have 2 relatively new cars I will not miss a payment on as well as figured I would do a 2 year personal loan from my credit union before embarking on the process.

 

I guess it would help to state that I currently have reasonable scores and perfect pay history on these accounts for over 8 years.   I know the recent (last 8 months) changes to my income will NOT allow me to overcome the affect minimal payments and mounting interest will have on my situation so I am looking at options  now to position myself for the 18 to 24 months to come.

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In regards to trying to keep some old established accounts alive through the process of negotiating settlements with others I don't see where there would be any motivation to a company to close an account that is in good standing just because others are not getting paid.  (That doesn't mean I will count on it not happening) 

 For Example....    A Target Card that is 11 years old with a $900 limit.   If there is a $850  balance and it is paid on time every month, why would Target want to close the account if they are un-involved with the other lender's accounts not being paid in order to try to negotiate a settlement?  It would be easy to pay month after month followed by charging some additional groceries to keep the balance in place throughout the process so Target's risk is never increasing.    Upon settlement  of the debt I want to deal with Target could be paid down to a low amount and would serve as better account to rebuild score off of than some secured card. Right?

Assuming I went the Settlement route I would be trying to negotiate Settlements across multiple accounts with 4 different major lenders.  Assuming I can my plans are to keep the following paid perfectly for the duration of the process.

Major Auto Company 2016 car at 0%

Major Auto Company 2015 car at 1.6%

Target, Discover, Firestone and 2 unrelated banks Visa and Master Cards all over 8 years old with perfect pay history.

A Personal loan with a credit union.  

Wouldn't that result in a better score 18 to 24 months from now than starting a year from now with secured credit cards or low balance cards?

 

 

 

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20 minutes ago, RogerDodger said:

For Example....    A Target Card that is 11 years old with a $900 limit.   If there is a $850  balance and it is paid on time every month, why would Target want to close the account if they are un-involved with the other lender's accounts not being paid in order to try to negotiate a settlement?  It would be easy to pay month after month followed by charging some additional groceries to keep the balance in place throughout the process so Target's risk is never increasing.    Upon settlement  of the debt I want to deal with Target could be paid down to a low amount and would serve as better account to rebuild score off of than some secured card. Right?

I found most credit cards either lower your limit to just slightly above what you currently owe, OR cancel it altogether. Canceling it does not relieve your obligation to repay what is owed, so they are lowering their risk by not letting you charge any more on it, but still expect payment back. 

I think stop paying on cards in order to negotiate 6-9 months down the line will probably get you sued instead.  You can negotiate with each creditor while your current. In fact, you might even be able to get a regular payment with no additional interest set up. Or they may settle for a lower amount, with payments, but of coarse all your cards would be canceled. At least if you negotiated this way your credit score may not go through the ringer, you would not show late payments.  Just my opinion. 

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1 hour ago, shellieh98 said:

I found most credit cards either lower your limit to just slightly above what you currently owe, OR cancel it altogether.

This is a good point.  Even if the creditor(s) choose to leave the account open, balance chasing is also a viable tactic they use to keep the consumer from running the debt up more while protecting their interests.  Worse the balance chasing ends up keeping utilization at 98-100% so the impact on the FICO score is bigger due to that.

 

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