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
 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." |
