The Better Credit Blog | Answering Your Credit Questions & Free Negotiation Dispute Letters

Reader’s Question

Hi Ryan,
If you sell a property using a short sale, how does this affect your credit score? How many pionts will it reduce your score? Would I be better off credit-wise by just letting the house go into foreclosure?
Thanks!

My Response

Dear [name removed],
A short sale will destroy your credit — anywhere from 50 - 100 points. A short sale won’t hurt your credit as bad as a foreclosure but the difference isn’t that much. If you can get the lender to do a short sale, I would do that.

-Ryan

Take Home Point

A short sale is when a mortgage lender agrees to basically lower the amount due on a loan. This usually happens when the amount due is more than what the house is worth and the homeowner is unable to pay their mortgage . When this is the case, the lender lowers the loan amount so the home owner can sell the home for market value. You might be asking yourself, why would the lender do this? Well, they do it to avoid a foreclosure. Keep in mind that in the event of a foreclosure, the lender would then be responsible for selling the house and even then, they are likely only to get market value for the house. Therefore, a short sale will in the end cost the lender less than a foreclosure.

(2 votes, average: 5.00 out of 5)

Reader’s Question

Dear Ryan,
A majority of my credit reporting issues are, unfortunately, alot of medical bills I’ve been unable to pay over time. Not sure how these are seen in terms of the statute of limitations, but I recently received a letter from the collection agency that owns all of my accounts, and that partial payments were no longer accepted. Strangely enough I had previously paid off two of the accounts, online, with receipts for each.

Even more strange, of the 5-6 accounts they listed, their 2nd page showed a totally different amount as ‘principal’ due, excluding interest to date, from the first page listing all the accounts. The oldest debt being reported is 2006, which I believe may very well be close to it’s statute but I’m not sure. I’m not sure if I should respond, correcting these folks of their totals, or dispute it in general.

My Response

Hi [name removed] -
The statue of limitation is 7 years in most states — it doesn’t matter if it’s a medical bill. Also, a collector who says that “partial payments” are no longer accepted is lying. Collectors are, for the most part, scum –they will tell you anything to get you to pay. They are simply trying to scare you and I bet would be more interested in cutting a deal with you if you were to say, “Well then I suppose you get nothing”. Keep on pushing them and they will eventually take an offer.

In regards to the paid off accounts and the incorrect account balances. You need to print out the receipts you have and any other documentation that proves these accounts are paid off. Mail these documents to the collection agency and tell them that by federal law you have the right to request that they provide solid proof that the debts are yours. In many cases, they simply cannot do this –either because they were lying or because they don’t know how to do their books. Hang in there.
(1 votes, average: 5.00 out of 5)

Best,
Ryan

I received the following email from Monica on behalf of the Federal Trade Commission. I think this information is important. While she doesn’t specifically mention any particular sources that claim to provide a free credit report, I will: freecreditreport.com is NOT where you get your free annual credit report! Freecreditreport.com will require you to sign up for credit monitoring service and pay a monthly fee in order to get a credit report.
Her email in full is posted below.

Hi Ryan,

Thank you,
Monica [last name removed]
on behalf of the Federal Trade Commission

(1 votes, average: 5.00 out of 5)

Reader’s Question

Hi,
I read your blog and thought that it was interesting regarding secured credit for people with imperfect credit. I am currently in the process of repairing my own personal credit from a student loan default and they are in the rehabilitation process. I am extremely interested in located a secured card that doesn’t report as secured on my credit report. Can you please suggest some to look at?
Thanks!
[name removed]

My Response

Dear [name removed],
Absolutely. I recommend that you check out some of cards offered on Credit.com. Most of these cards will not show up as secured on your credit report. Here is a direct link to their secured cards.

Hope this helps,
Ryan

Take Home Point

If you have ever said to yourself, “How am I suppose to build (or repair) my credit when no one will issue me a credit card”, the answer is a secured credit card.

Secured simply means that the credit line is secured by you (i.e., you have to deposit the money before they will issue the card and when you close the account, the money is returned to you). Thus, the credit card companies will issue the card to people with poor credit because it doesn’t represent any risk. The advantage to you is that they (in most cases) report monthly as simply a credit card on your credit report.

I used a secured card as my first “credit repair card” and kept it open for two years to accrue some age on the account. This is a great way to start the credit repair process.

(1 votes, average: 5.00 out of 5)

Reader’s Question

Ryan,
I have 120 days past due with my GEMB/LOWES Card so they sold it to another lender who I am paying through a debt counseling co. GEMB/LOWES is reporting my PAY STATUS as 120 days past due although I have not missed a payment with the lender who bought my debt. Can I get this statement removed to read PAID AS AGREED?
Thanks!
[name removed]

My Response

Dear [name removed],
It sounds like you’re using a debt settlement company to pay off your debts. The problem with debt settlement companies is while they will settle your debts (eventually), your credit gets destroyed in the process.

The way it usually works is that you basically setup a savings account with the debt settlement company and pay them an amount you can afford on a monthly basis. Once you have enough money in that savings account to settle debt, they will attempt to negotiate with the collector on your behalf for settlement. The problem is that the debt settlement company requires that you stop paying the debt to the creditor while you are paying them. This is what destroys your credit. I’m afraid that unless you take matters into your own hands and stop paying this company, your credit will only continue to get worse. Trust me, [name removed], you can do this on your own if you follow the steps outlined in my blog.

Best,
Ryan

Take Home Point

Many people arrange for their debts to be handled by a debt settlement company falsely thinking that all of their credit problems are going to be fixed overnight and all they have to do is give the debt settlement company a small percentage of the amount successfully settled. The fact of the matter is that going this route is not easy –in fact, its painful because when you stop paying your debts directly to the creditors, the late payment entries pile up. Remember, the business model of debt settlement works by telling their customers to stop paying their debts and start saving money in a savings account with them. While this is good if you absolutely cannot afford your debt payments (the debt settlement companies will adjust your savings amount according to your affordability), they will not pay ANYTHING to the creditors until they think they can settle the debt.

(2 votes, average: 5.00 out of 5)