 Beware
credit score quick fixes
|  Dear
Steve,
My credit is in the tank. For many years, I was
in default and many debts went into collection. I am finally paying
them off after being in my current, stable job. I would like to buy
a home soon but am concerned about the terms of a loan that I would
qualify for. I heard that I could hire someone to clean up my credit
report. How much can they clean up? Is it worth it? I've been quoted
$250. Thank you for any advice you can offer. -- Jennifer
 Dear
Jennifer,
Congratulations on the job. Isn't it just a great feeling to be
able to pay those bills!
I understand your pent-up desire to have a home of
your own, however, I am concerned that you may be making a mistake.
Here's my take.
Hiring someone to clean up your credit is generally
a bad idea. Not just because you can do it all yourself for free;
but also because the people who tend to be in that business have
a terrible reputation of either underdelivering on promises or getting
you in more trouble by using fraudulent methods of hiding negative
credit information. The hiding is only temporary, and you are held
liable for the fake results.
From what you have told me, you are already beginning
to pay back your collection accounts. Chances are that if you are
devoting the bulk of your uncommitted cash flow to paying creditors,
you are not doing a lot of saving. If you are doing a lot of saving,
then you are not paying down your debt, and improving your credit,
as quickly as you could. Until you can get some substantial savings
for a down payment and those incidentals that will surely come with
a home, you may be wise to wait a little longer before buying. If
you buy now, you will likely have to pay the higher rates charged
by "subprime lenders."
Higher rates are one thing -- unfortunately, your
past payment history means you represent a higher risk to lenders,
so there's no way around paying a higher rate until you have racked
up a year or more of on-time payments. But you can avoid the type
of subprime lenders who also charge high fees to start and high
fees to exit their loans. A better alternative is to look into a
program such as Fannie Mae's "Expanded Approval with Timely Payment
Rewards." The mortgage is for less-than-perfect credit and has a
low down payment with a higher interest rate to start. But after
24 on-time payments, it automatically drops to a normal interest
rate. No fees, no refinancing, no penalties. Sweet. You can get
the details at www.fanniemae.com.
In the mean time, to improve your credit while you
prepare for homeownership:
- Keep paying off the debts in collection.
- Pay your bills, in full, on time, every time.
- Give yourself time.
Repairing poor credit takes time. The older the negative
stuff on your credit report is and the more positive history you
add by paying on time going forward, the faster your score will
improve. For more tips on improving your credit, go to Bankrate's
"Your
Credit Report" section.
Jennifer, you are on your way to a new home. Be careful
of credit repairers, debt settlers and crooked subprime lenders.
You'll get there much faster on your own. Good luck!
The
Debt Adviser, Steve Bucci, is the president of Money Management International
Financial Education Foundation. Visit MMI
for additional debt
advice or click here
to ask a debt question. | 
