Stacy Wall
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Yes
Unfortunately, the answer is yes. Cosigning your car can negatively affect your father in three ways:
- It will show up on his credit report as new credit, and like all new credits it will lower his credit score.
- His utilization will get higher, which will further lower his credit score.
- The loan will also be included in his debt to income ratio which is an important factor in the mortgage approval process.
In general, it’s always a bad idea to search for new credit 6 months prior to applying for a mortgage or refinancing). Co-signing is the same as new credit.
My advice is to wait with the car loan until AFTER the mortgage refinancing is over.
For more information please see What Is the Downside of Cosigning a Loan.
1%-9% is ideal (certain limitations apply)
You won’t find it in written in the Fico formula, but the common conception is that the ideal credit utilization is 1%-9%, with not more than 50% or your revolving credit accounts reporting balance.
This means that if you have 4 credit cards, at least two of them must show zero balance, and the combined balance of the other two must be low, between 1% and 9% of your combined credit limit on all 4 cards!
Another thing to keep in mind is that there’s a difference between the 3 major credit bureaus. While Transunion “likes” to see 0% utilization and may reward you with a few points, Equifax will do just the opposite and actually “prefers” 1% utilization on 0%. I’m not sure about Experian.
It’s important to note that the above rules of the thumb are just that. Everyone’s situation is different and there’s no one size fits all approach. For some 1%-3% utilization will yield best results, while 5%-7% will be best for others. The 50% rule however does seem to benefit all users.
Last but not least – remember that this is only small scale tweaking. I’d only do this as a “hobby” – to see how high I can get my score, but I won’t turn this into a religion,
Side Note
Zero balance doesn’t mean not using your cards. You can use them as much as you like, but since most cards report your monthly statement to the credit bureaus, you will need to pay them off just a few days before the closing date, so that your statements read zero!It won’t help your credit a bit
Paying off a car loan does nothing extra to your credit. In fact, on the long run it might even harm it.
What build and improve your credit is a stream of on-time payments. It will take you at least 24 months of on-time payment to re-build a reasonable credit score after the bankruptcy, and years to build good score.
If you prepay car loan (or any other installment loan) you stop making on-time payment. While this in itself doesn’t hurt your credit, it doesn’t help it either because it stops building it.
What I’d suggest is to keep making payments on that car for the next year. That will improve your score, but I doubt if it will be enough to qualify for a new car loan after a bankruptcy. Credit scores are just a small part of any lending decision. What’s on your credit report counts much more, and a bankruptcy something any potential lender doesn’t like to see. Other factors such as your debt-to-income ratio and employment stability also have big impact on any potential creditor’s lending decision.
To improve you credit score and debt-to-income ratio prior to applying for a new car loan, I’d like to recommend on this technique. It will certainly improve your chances of approval and get you better terms.
Good luck.
Try a good will letter
It is typical for a credit score to go down 60 points or more for a single late payment. In fact, the higher your score is to begin with, the larger the drop (See late-payments.html).
Your bank is not telling the truth. While it’s true that lenders are well within their rights to report a late payment, they are not required to do so. You could try a good will letter. It may or may not work, but you being a paying customer for 12 years may certainly help. See goodwill-letters.html for details.
If the bank refuses to remove this single late payment from your report, only the passage of time can help. You will probably need at least 24 months of timely payments to get your score back to where it was. It does seam unfair, but this is how the system works.
The settlement has noting to do with your score going down
Settling that judgment did NOT impact your score. Your score was already damaged because of the judgment itself. Payments made on judgments are NOT reported to the credit bureaus, so that settlement is not reported and this is why it’s not the culprit.
Only when the judgment is paid in full, the judgment holder sends the court paperwork showing the judgment is satisfied. The judgment is then updated to show it is paid.
Something else must have caused your score to drop. It could be a difference in your debt-to-limit ratio, or a lack of utilization reported for credit cards. If you paid off an installment loan, it would count less in your score calculation and can account for the drop.
By the way, even if your score gets back to where it was, you’ll find it impossible to get approved until that judgment is paid. Mortgage lenders require all derogatory items to be resolved these days.
Probably 25%, but how good are you at negotiating?
The collection agency will probably ask for 75% to 50% on a 1 year old defaulted debt. You may be able to get it down to 25% in a lump sum. Forget any payment plan.
When negotiating a settlement, it’s important to know how much the collection agency has paid for your debt, and just how much they stand to gain by agreeing to your offer:
- Recently charged-off debts – around 7 cents on the dollar.
- Older accounts or accounts sold a second time – around 2 cents on the dollar.
- Years-old debts – less than a penny on the dollar.
So even of you agree to pay “only” $750 on a $3,000 debt, they still make a profit of $540.
Collectors have quotas, so the end of the month would be a good time to get lowball settlement offers accepted. Just tell the collector that your grandmother has agreed to loan you $750 to settle this debt and that’s all you have. They may accept it.
Make sure you get a signed settlement in writing before you make any payment. Pay only with money order or cashier’s check. See how-to-pay-off-debt.html for more information.
Paying off debt does NOT improve your score. The damage is done and will remain for 7-1/2 years on your report, although its effect on your credit score will diminish with time. Settling will look better to future creditors reviewing your credit report. It will also stop collection calls and prevent lawsuits. See why-pay-off-debts.html for more information.
Only a small ding
It is true that closing credit accounts may lower your credit score. When you close a credit account you may shorten your credit history, lower your available limit and raise your utilization. That may hurt your credit.
However, if you keep low balances than your utilization will remain low. Also, if it’s NOT your oldest card then you don’t shorten your credit history by closing it.
Even if it’s your oldest card, as a rule of thumb it’s worth keeping the card only if it’s older by more than 4 years than the other cards.
Unused cards contribute nothing to your credit anyway (what build credit is a stream of timely payments), so you loose nothing by closing it.
Conclusion: If you don’t plane to use the card – let them close it. You may see a few point drop in your score, but after a month or two your score will get back to where it was.
Only thing – make sure you have some kind of written confirmation that the account was closed with $0 balance, and keep it forever (here’s why).
See close-credit-card.html for more information.
It does nothing to your credit
Fico credit score (and all the other scores) do not factor bank accounts (checking, savings and CDs). They are not an extension of credit, and as such are not reported to the credit bureaus and are not factored into the credit score formula.
The only exception is when a bank closes an account and the balance is not zero. Then the bank may report the debt to the credit bureaus, or sell the debt to collection companies.
BTW, are you sure you need 4 different bank accounts? Are you paying NSF fees? You may be better of with just one or two account.
Simply ask them…
Interest rates are based on your credit worthiness. If you are carrying balances on your credit card, and especially if your paying the minimum or just slightly above – it’s very unlikely that the credit card company will agree to lower your rate.
I would suggest increasing your payments in order to lower the balance you’re carrying, and even better – paying it in full if you can.
When you pay your balance in full every month – you won’t be charged interest at all. Not only you’re saving money, the credit card company is very likely to lower your APR.
After a few month of zero balance – simply call the customer support number and ask them. The worst they can do is say no.
Good luck!
There’s no such thing as Pre-approved
There’s no such thing as “pre-approved”. It’s basically a marketing lie and a fraud. If you’ve been pre-approved, than why on earth do they want you to apply?
It’s only a gimmick to attract your attention and to get you to apply for an offer you wouldn’t apply otherwise. In most cases, even if you apply to such offer you end up rejected, but the hard inquiry remains on your report and might actually hurt your credit!
What pre-selected really means is that they’ve processed your information (along with that of millions more) and according to their judgment you may be interested to qualify for whatever it is they’re trying to sell.
My advice is to ignore all these offers, just as you ignore 99% of all commercials. They’re only good for them, not for you. Only apply in the first place for the ones you really want.
Her bad credit cannot affect yours
Adding someone as an authorized user is common practice among family members who want to help each other build credit. It even has a name: Credit Piggybacking.
Appointing a family member as an authorized user on your account has no negative effect on your credit. You are the primary card holder, you are the only one held responsible for paying of any balances. As long as you are responsible – nothing bad can happen to your credit.
However, do keep in mind that your sister has a bad credit, meaning her ability to control her spending is somewhat low. She may run high bills. That may increase your utilization, not to mention that you may end up paying for her spendings.
My advice – appoint her as an authorized user, but DO NOT give her the actual credit card. That way she can enjoy your steady stream of payments and build credit, while you don’t risk her running high bills.
Did you get the actual summons?
Collection agencies like to threaten people with legal actions regularly. In many cases, the treat is only a part of their scare tactics and is not real.
You can call them and ask for the full name of the firm’s attorney and his/her license number in the PA bar association. If the treat is real they must provide this information. If they fail to provide it means that it’s only a treat.
Next thing you want to know is whether the Statute of Limitation (S.O.L) has expired. Some collection agencies will continue to make collection attempts even after the SOL. They’re hoping you don’t know about the SOL and you’ll pay up if they threaten you enough. They may even file an actual lawsuit. In the event that they do, you can always use the SOL as an affirmative defense. Use this Complete list of Statute of Limitations by State to check the SOL for your state.
If they do file a lawsuit against you, you need to file a response to the summons within the time frame allowed. Otherwise, they may just ask for a summary judgment. You may try to dispute the amount owed, but you will need to have some real proof as to why you don’t owe that much.
Previous settlement offers make no difference judges. It is not likely that a judge will lower the amount of the debt unless you provide some real proof as to why you don’t owe that much.
It is normal that once the collection agency has filed a law suit, they won’t be willing to settle and will want the full balance. Any payment arrangement you make at this point will require you to sign a consent judgment.
See why-pay-off-debts.html and how-to-pay-off-debt.html for a more details.
It depends
Whether you realize it or not, your account is considered a bad debt. Although banks do not usually report bad debts to the credit bureaus, they can certainly do so.
From what I know, it depends on the balance. If it’s lower than $300 than most banks typically do not report it to the bureaus. However, if they sell your debt to collection than the collection agency will report it.
One thing for sure – they will report it on the Chexsystem that links to all banks, so when you try to open a new checking account elsewhere you won’t be able to open a new account.
Having a charge-off or a collection account may cost you up to 120 points off your credit score. Not to mention that the bank or the collection agency they sell the debt to can file a law suite, and most likely will get a judgment.
My advice – Call the bank tomorrow and make a commitment to pay those NSF fees off. After that, if you prefer not to have a checking account and use cash instead, then fine, close the account. But get the account closed with zero balance.
BTW, if you don’t want a checking account you can always use money orders to pay for stuff you need checks for. Those cost a little more than regular checks, but far cheaper than paying the bank huge NSF fees each month.
They are all accurate
All 3 major credit bureaus are accurate. The reason that you have different scores from each bureau is because they all keep separate database, and they do not share information between themselves.
Credit scores are a snapshot of your actual credit reports. Not all creditors report to all three credit bureaus, nor do they necessarily do it at the same time.
Say that you have a store credit card, and the store wants to save money so it reports to only one credit bureau rather than all three. That means that your credit reports with all three bureaus are not equal, and so does your credit score. In fact, it’s normal for your score to be different at each credit bureau. There is no such thing as one being more accurate (See understanding-fico-scores.html for more information.
You don’t tell your creditors which score to use. Large creditors check all three, while smaller ones simply use the bureau they have contract with.
Hope this clarify things for you.
It varies, depending on state and situation
I see that you live in Louisiana, which is a Community Property State. In these states, the property acquired during marriage is held jointly (See this). Therefore, your husband’s name will be on the deed and his credit report will be pulled and considered as part of the loan approval. So in these states a non-purchasing spouse’s bad credit can certainly keep you from getting a mortgage.
In other states, potential lenders may overlook the non-purchasing spouse’s bad credit, but may include his/her debt for Debt-to-Income purposes.
There have been instances where lenders had the non-purchasing spouse signs an affidavit stating that the borrowing spouse is purchasing the home solely and the non-purchasing spouses waives interest in property. In these cases the non-borrowing posse’s debts were excluded from the DTI calculation.
