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My wife and I have been struggling lately with some credit card debt and some collection stuff. With the help of a family member who will loan us the money at a LOW interest rate we will be able to pay off ALL of our debt which is about 26k. Now my wife and I do not have a house yet and we pay 895 a month in rent( I think we need a cheaper place) Now granted we had some negative things on our credit report(mine use to be awesoeme, never late, no collections) now I have a few things just no credit card collections yet thank God. Now my wife does but she also does not have much debt either, more like 2 grand. I owe 24k to take care of EVERYTHING.

So my question is, after we pay off our debt what should we do to start improving our credit score?

I have 8 accounts that are considered lines of credit or credit card related accounts.

I was thinking of closing all my accounts except 2 cards.

1 with the lowest credit limit of 500 bucks
1 with the highest credit line and longest time open. 4500 credit limit

I also have a 474 car payment that I realized I can no do anything about unless i want to loose my butt on the deal. I owe too much for what the car is worth. Sucks

What would you do in order to raise your credit score and what things would you keep open or just close it all?? Say to heck with it and not have any credit available? Maybe except for 1 $ 500 dollar credit card for emergencies?
The person that wanted to help me was my Dad. I didnt come to him for help or anything, he just knew we were having issues and wanted to help. How could I refuse. Plus its more reason for me to pay it off quicker than anything. We are gonna sign a notarized document and all. Basically if i mess up Im outta his will and other consequences.
I agree not to worship to the almighty FICO score but we want to be able to buy a house at a reasonable cost without decent credit. I want to rebuild it just because I want to be able to buy whatever I want that i can afford in the future. Its embarrising getting declined when you absolutely may need it.

8 Thoughts on Paying off debt what next to rebuild our credit?
  1. Reply
    Steve D
    July 26, 2011 at 3:39 am

    Do not close the accounts unless there are annual fees associated with them. Closing the accounts lowers your “available credit” and lowers your credit score. What you want to do is use each card on a quarterly basis for something small (say around $ 25 to $ 50) that you would normally pay cash for. Put the money aside and when the bill comes in, pay it immediately. This does two things – keeps the account active and builds up your on-time payment history. Obviously, if you have extra money, pay down the car payment as much as you can, even if it is only $ 25 extra a month. This will lower your debt to income ratio faster, which will help increase your score.

    Take a look at your expenses…is there anything you can cut back on (cell service, cable, etc.). Call the cable company if you have one and see about promotional deals – saving $ 30 to $ 50 a month can help bring that car balance down that much quicker. Really really take a look at expenses – do you eat out often (once a week or more)? If so, cut back preferably to no more than once a month until you have everything under control.

    Try to put money into a savings account on a regular basis (payroll deduction is great for this). Six or more months’ worth of income should be in a savings account as emergency – imagine losing your job, this is your lifeline.

    IN all honesty, it is the accumulation of a lot of little steps that puts you back in the driver’s seat when it comes to finances…you just need to identify where you are making expenditures that you really don’t need to and then changing your spending habits.

  2. Reply
    July 26, 2011 at 4:30 am

    Hello.Let me start off by saying that my answer comes from personal experience. Takes one to know one,and been there ,done that type of thing.First of all you could do as we did(my wife and I) Sit down nice and comfortable and calmly and logically make yourselves a no compromising budget .Agree to both stick to it regardless. Write down all your debts on one side of a paper,then label them debits.Then all of your available assets on the other side and callthem credit. count how many payments you have to make every month (don’t include the car note,you need that to stay paid as is).Then divide that by the available assets.Five bills into 4500=90.00 per bill.Also don’t forget that you got to eat.So factor that in too.Rent a cheaper place,too.Cheaper,but decent.Keep only one credit card for emergencies,preferably the4500 one,it has more history.Hope this helps

  3. Reply
    July 26, 2011 at 4:41 am

    My advice would be nearly identical to Steve D.’s. I’m a consumer law attorney that represents people with large amounts of debt. Don’t close any accounts but do pay off accounts and then stop using those cards. Many consumers find debit cards to be helpful but try to get one with no overdraft protection. The banks that used to gouge people with 29% (or higher) interest rates are now gouging people with outrageously high fees for using the overdraft protection. The “old-fashioned” debit cards just stopped working when there was no money left in the account. They are still the most consumer-friendly way to pay for things.

    Once you get this car paid off, hold onto it for a while. I think that car payments of $ 400/month or more are for people who have little to no revolving debt.

  4. Reply
    July 26, 2011 at 5:18 am

    Your best bet is to get rid of all your credit cards. You can get a mortgage without a credit score. It’s called manual underwriting. It’s not a sub-prime loan. It’s how home loans where givin’ before all the fico score worship.

    You need to clean up your mess first by paying off all your outstanding debts. Then after 2yrs with a clean slate you can find a bank that does manual underwriting.

    Borrowing money from family is not a good idea. It will trash a relationship faster than anything.

    Do a written budget and a second job until the debt is gone.

    If you are responsible with your money and live on less than you make. If you save up an emergency fund and pay as you go. You will not have any payments. You will have money and you will not have to worship at the alter of the almighty fico score.

  5. Reply
    July 26, 2011 at 5:40 am

    Hi Bradley.

    You will want to keep all the accounts that you have now open. This helps you maintain a long credit history which is factored into your FICO score. You can keep a really good credit score by maintaing a 10%-15% balance on each of the cards. I know it sounds silly, and most people want to be debt free, but having a $ 0 balance on each card will lower your credit activity which will lower your score.

    You said you have 8 lines of credit. That is great. Is is hard to believe that people with an A credit score have 20 accounts or more? Make sure you keep all 8 open.

    Your doing great with paying off your debts. Pay off collections (if any) first. Make sure that the collection agency removes this off your report for full payment.

    As far as your car goes. Continue to pay each payment on time. I understand the frustration with a high payment. I have the same car payment and I can’t trade it in right now because I owe more than its worth. The best thing for you is to continue to pay that car payment on time to maintain a 100% on-time history.

    When all of your debt are paid off, you want to maintain your credit score by keeping 100% on-time payments, and having a mixture of credit cards and loans.

    Think about a mortgage. Once you have your debt paid off and you let the balances update on your credit report, you will have a much lower debt-to income ratio, and of course a much higher credit score. This will get your approved for a mortgage, and depending on your location, will be much lower than your current rent.

    If you check out, you can get a free credit report and score. In addition, we will provide you with the amount that you can improve your credit score by. Most people find that they can improve by 100 points. We also have a really cool credit improvement tool that will show you what to do to help raise your credit score.

    In conclusion (after this long answer), keep all accounts open that are current and in good standing, pay those off by 90%. Work with your collection agencies to remove all bad debts once you have paid them off, maintain 100% on-time payments, and apply for another type of credit such as a mortgage or second car loan. While it takes time to help rebuild credit, if you maintain it during that period you come out a winner.

    Happy Quizzling!!! Angela B.

  6. Reply
    July 26, 2011 at 6:22 am

    keeping the lowest limit credit card does not make much sense. Keep the older and highest limit card.

    you may find the article useful

  7. Reply
    July 26, 2011 at 7:07 am

    Do not close the accounts just pay them off closing them changes your credit to debt ratio. The moment you drive off the lot your car is worth 25% less than you paid for it so that you just live with, just keep the payments on time. If you have things in collection that are past the SOL forget them as paying them will just reset the 7 year clock, better off letting them fall off as they can take you to court but if you show up cannot collect. You will not get a house without at least a 650 credit score and that is through FHA with 3.5% down. Hang in there it just takes time

  8. Reply
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    July 26, 2011 at 7:22 am

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