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Dr. Don Taylor, CFA, Bankrate.com advice columnist Fiance's bad credit is a problem

Dear Dr. Don,
I am getting married in the summer and my fiancé and I want to buy a home, but he has a few things in collections. Will he have to pay the charge-offs and other things on his credit report in order for us to get financed?
-- Krystal China

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Dear Krystal,
When a company charges off a credit card debt, it's just taking an accounting step to recognize that it has a nonperforming loan on its books. The age of the charge-offs can be important because it's possible your fiancé no longer owes the debt under the statute of limitations applicable for the credit agreement. The Bankrate feature, "State statutes of limitations for old debts," explains the statutes in greater depth, but it's not a substitute for legal advice.

If the debts aren't old enough to fall under the statute of limitations, then paying off the charge-offs is a step toward resurrecting his credit, but it won't fix his credit problems overnight. That's because negative information stays on his credit report for at least seven years. The initial missed payment that led to the charge-off starts the seven-year clock. Paying off the balances will show up on his credit report but won't erase the negative payment history. Expecting to turn his credit history and credit score around by summer is unrealistic.

He should get a sense of how bad things are by getting his credit scores from at least one of the three major consumer reporting agencies: Equifax, Experian and TransUnion.
The Bankrate feature, "How credit scores affect mortgage rates," provides a nice primer on the topic, along with the contact information to get his credit score(s). The scores also have simulation exercises that allow you to run "what-if" scenarios to see how actions he can take will improve his credit score.

You're planning on having a lifetime together. Don't rush into a high rate, subprime mortgage just to be able to take on the moniker of homeowners. It won't take seven years to improve his credit to the point where you can get financing.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & investing" or "money."

Bankrate.com's corrections policy -- Posted: April 5, 2007
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