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Thread: Pay High Interest to Build Credit???

  1. #1
    AudreyLeigh
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    Pay High Interest to Build Credit???

    My boyfriend bought me a car the other day. We financed $4800 at 23.99%. Killer I know. All he had on his credit report were 2 - $300 collections and nothing else so we were kinda screwed... needed a car... etc etc. So now we have this loan.. no going back.

    Anyway - since were planning for the future and such we need to work on his credit now. Point being. We have a 36 month loan. Were debating on paying it off soon (like I work now that I can and pay it off in 3-4) or if its worth the few hundred bucks in interest to pay it for 18 months to build up his credit. I know you need not only that youre able to pay a loan but the longevity of payments being paid... to build credit.

    I just made the law changes and filed ch7. After 6 months I can start re-building MY credit.

    So, honestly the plan is. Pay on this car for 18 months and then pay it off. A few months later finance another car (for him) on my credit with him as co-signer to build MY credit.

    We will also each be getting secured credit cards to have revolving accounts. And I have a student loan at $50 a month that will help credit too.

    Im just not 100% if this all makes sense and if 18 months is not enough/too much time on a loan to really impact his credit rating. Enough of an impact for his to co-sign a loan.

    If any of this makes ANY sense please - HelP?!

  2. #2
    Featured Member scorpio's Avatar
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    Default Re: Pay High Interest to Build Credit???

    You are doing everything right. I did the exact same thing 12 months agao and my credit went from the mid 500's to over 650! Go to experian.com, transunion.com and equifax.com and pull credit and dispute any collections, or better yet, pay them. Keep your payments on time, even if it means eating tuna out of the can. You should be much improved in 6-12 months. Good luck!

  3. #3
    AudreyLeigh
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    Default Re: Pay High Interest to Build Credit???

    Pulled all 3 bureaus the day before we got the car. He has $1200 in collections. 2 mentioned and 1 that wasnt on the company Honda pulled. Were going to pay 1 a month starting in Jan.

    Other than that I think hes got it pretty easy. Its a lot easier to build from nothing than build from a bankruptcy like Im going to be doing!

    I cant believe your score jumped so much! Thats just from a car or from other stuff too?

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    God/dess montythegeek's Avatar
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    Default Re: Pay High Interest to Build Credit???

    Audrey--READ THE FINE print! Read the loan document, if you did not get a disclosure statement report them to the attorney general of your state.

    Any outfit that charges 24% interest, probably put a provision in there that you owe the same amount no matter if you pay it off early or on time. If it is there pay it on time, not early (or much early) and pay everything bad on his report first.

    In some ways you are a better risk than he is, because you cannot file for bankruptcy again for a few years, and he still could!

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    God/dess VenusGoddess's Avatar
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    Default Re: Pay High Interest to Build Credit???

    Scorpio raised his score by disputing some of the items on his credit report. One agency was reporting 4 times on the same account. That drops your score...big time. Go over the reports with a fine tooth comb. Pay off the collections and pay ALL of your bills on time.

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    Senior Member jadenphilly's Avatar
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    Default Re: Pay High Interest to Build Credit???

    It can take some time to get your score up depending on what type of collections you have on your report. Also beware, do not contact any of the creditors that are on you credit report until after the dispute has been completed which usually takes about 30 days by law. If you contact the creditors they will update the date that the debt was opened. And that just makes it stay on there longer if the debt is indeed valid.

  7. #7
    AudreyLeigh
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    Default Re: Pay High Interest to Build Credit???

    Actually, when you contact a creditor with means to pay them back they can update the 5 year rule. After 5 years it falls off your credit report but if you call at year 4 month 11 they can update it to another 5 years. We arent trying to get out of paying. Theyre only 3 bills and were going to call the company and pay the bill... not try to get out or dispute them. Theres no dispute, he owes the amounts and the bills.

    Good point Monty, someone already mentioned that. We didnt actually sign any agreement stating that because we didnt acually get financed. We left with an 85% chance of getting financed. If we cant get financed, we give the car back. If it comes to that in a few weeks were just going to pay the car off like we never financed it in the first place. Im not going to sign anything that says I have to pay $8500 for a $4800 loan which is what it would be.....

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    Banned Melonie's Avatar
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    Default Re: Pay High Interest to Build Credit???

    Any outfit that charges 24% interest, probably put a provision in there that you owe the same amount no matter if you pay it off early or on time. If it is there pay it on time, not early (or much early) and pay everything bad on his report first.
    Im not going to sign anything that says I have to pay $8500 for a $4800 loan which is what it would be
    But that's Monty's point - you may already have done so by signing the credit/car loan application which didn't have an interest reduction waiver for early repayment. If the loan goes through you may already be stuck with the choice of paying out $8500 over the entire term of the loan, versus paying out the same $8500 next month to get clear of the $4800 loan.

    SubPrime lenders are getting absolutely ruthless these days about employing every possible angle in their favor to generate more 'earnings' from customers who don't go bankrupt on them ... because the 'earnings' are needed to offset losses from customers who DO go bankrupt on them !

  9. #9
    AudreyLeigh
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    Default Re: Pay High Interest to Build Credit???

    damnit - well if thats that then ill just pay for 36 months if it makes no damn difference anyway!

    I dont understand how i can have a loan with a certain APR - how can they legally make me pay for 3 years of an APR if i pay it off in 18 months. Wouldnt that "technically" be doubling the APR? so now its 48% in 18 months? I just dont get how thats legal. I thought it always went by APR not a flat rate...

    What I mean is theres 23.99% apr which will be $3700 VERSUS a flat rate $3700 ... see what Im saying? So technically I just bought a car from a LOAN SHARK?!?!!

    Im going to go call the car place and see whats up... the whole time we were taking out the loan we said were planning on paying it off in 18 mos so i dont see why he would screw me...

    ok... that last line was the dumbest thing ive said to date... a car guy screwing me? of course he would...go figure...

  10. #10
    AudreyLeigh
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    Default Re: Pay High Interest to Build Credit???

    p.s. Im soooo glad this car books at $8200 Retail ($6200 Private) so I dont feel SUPER SCREWED.... even if I do have to pay $8500 (trying to see the bright side)

  11. #11
    God/dess montythegeek's Avatar
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    Default Re: Pay High Interest to Build Credit???

    Quote Originally Posted by AudreyLeigh
    p.s. Im soooo glad this car books at $8200 Retail ($6200 Private) so I dont feel SUPER SCREWED.... even if I do have to pay $8500 (trying to see the bright side)
    Audrey,
    The point is that the loan agreement says what it says, and by signing it YOU agree to it. You may not like it, but you signed the agreement.

    If you sign a lease on an apartment, you are on the hook for the full amount even if you decide to but a house in 2 weeks, unless there is a way specified to get out of it. WHAT YOU SIGNED DETERMINES YOUR RIGHTS and Responsibilites, not what you wanted or thought.

    Never sign anything without reading it!!!!!!!!!!!!

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    Default Re: Pay High Interest to Build Credit???

    Quick question - Will my credit score be affected because I have decided to take a year off of work ? Three months ago when I had the house refinanced my credit score was 811 . I have no outstanding debt besides my house payment now when I did my last refi I threw the car into it so it could be paid for and also one payment is much easier .I had many credit cards that I forgot I had so I contacted all of them to cancel my existing accounts I try to keep just a couple of cc . I use my discover card to pay all the bills that I can .I get a little cash back from Discover which is nice and I make sure to pay the full monthly balance .

  13. #13
    Banned Melonie's Avatar
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    Default Re: Pay High Interest to Build Credit???

    Will my credit score be affected because I have decided to take a year off of work
    In the sense that you don't have a 'documentable' source of regular income, yes your credit score will be negatively impacted.

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    Banned Melonie's Avatar
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    Default Re: Pay High Interest to Build Credit???

    What I mean is theres 23.99% apr which will be $3700 VERSUS a flat rate $3700 ... see what Im saying? So technically I just bought a car from a LOAN SHARK?!?!!
    Where the SubPrime lenders are concerned, about the only difference between them and loan sharks is A. the loan shark will TELL you clearly what your responsibilities are (rather than depending on 'fine print' surprises), and B. the loan shark will break your kneecaps if you don't pay, while the SubPrime lender will just break your 'balls'.

    The real issue here is that the fine print regarding some loans lumps the amount of total repayment as being the initial amount borrowed plus X amount of interest ... with no provisions for recalculation of interest if early payments if payments are made early, but with plenty of provisions for increased interest and penalties if the payments are late.

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    Featured Member scorpio's Avatar
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    Default Re: Pay High Interest to Build Credit???

    once again Mel is spouting off on things she knows nothing about. Since I make a living in finance, and deal with credit on a daily basis, I will clarify:

    1/ Most car loans are simple interest, which means that as you are responsible for paying off the loan balance as well as the finance charge. If you take the full 36 months to pay the loan, you will indeed be paying the balance plus full interest. If you pay off early, then you are liable only for the interest used.

    2/contacting a creditor does not mean that they can prolong your account. If you we money to creditor A, they typically can report deliquancies or charge-off for 7 years. After that 7 year period, it must be deleted. However, if creditor A sells your account to creditor B, then the process starts over.

    3/you job status has ZERO impact on your credit score. The precice calculations are a secret, but credit agencies typically weigh length of credit, high balnce vs high limits, pay history when determining score. The quickest way to drop your score is to max out a credit line, which is worse than making a late payment.

    4/How do you know what your car "books" at? What "book" are you using. The only value that matters is cash value. If your dealer sold you a car for 4 thousand, then the actual cash value is LESS than that (meaning the dealer bought it for less than 4 thousand) THAT is the value of the car, regardless of what some book says. period.

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    Featured Member Lizette's Avatar
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    Default Re: Pay High Interest to Build Credit???

    Do these mom-and-pops car places even report to credit agencies? A friend of mine bought a piece of poop at 20% APR for an amount twice the vehicle's value. His credit was in the toilet and he had no choice. After he paid off the full amount, his credit score was the same! And there he was, thinking he was doing a good thing for himself.

  17. #17
    AudreyLeigh
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    Default Re: Pay High Interest to Build Credit???

    When I say "book" I mean what was on KBB - as in... if I paid $5k cash for it Private Party at KBB is $6200 so I COULD have turned around and sold it for a grand more than I paid for it... like on Craigslist or something...

    Mine wasnt mom and pop - it was a Honda Dealership but I have heard that about them not reporting.. who knows?

    Isnt it a BAD IDEA to cancel credit cards because it affects your debt to credit ratio therefor lowering your FICO? This is what Suze Orman says... just curious how much of an impact it has (since it was brought up!)

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    Featured Member Lizette's Avatar
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    Default Re: Pay High Interest to Build Credit???

    Quote Originally Posted by AudreyLeigh
    When I say "book" I mean what was on KBB - as in... if I paid $5k cash for it Private Party at KBB is $6200 so I COULD have turned around and sold it for a grand more than I paid for it... like on Craigslist or something...
    KBB tends to inflate the actual value. Most sellers use KBB to justify charging more than the market value.
    http://www.edmunds.com/apps/usedmatr.....secnav.4.1.* can give a reasonable market value for your vehicle.

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    Default Re: Pay High Interest to Build Credit???

    Quote Originally Posted by AudreyLeigh
    Isnt it a BAD IDEA to cancel credit cards because it affects your debt to credit ratio therefor lowering your FICO? This is what Suze Orman says... just curious how much of an impact it has (since it was brought up!)
    Well I was told that it's not good to have the potential to create a huge deficit example being having a bunch of credit cards at your disposal - they get a little nervous - actually it stated on my credit report that I had too many credit cards ?? so I cleared them out - I guess I get it - but I am no expert .

  20. #20
    God/dess montythegeek's Avatar
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    Default Re: Pay High Interest to Build Credit???

    Too high of an available credit to income is a negative. I do not know when too-high starts. About.com says to keep it below 25% of available.
    http://financialplan.about.com/od/cr...mproveFICO.htm

    I cannot vouch for their accuracy, either way.

  21. #21
    AudreyLeigh
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    Default Re: Pay High Interest to Build Credit???

    The 25% thingy is correct. It means that you have the avail credit but you dont need to use it... I dunno about too much avail credit.. i mean what about if you have a platinum card? wouldnt that be too much credit? who knows?! I give up trying to figure this stuff out...

    EDIT: I get the too much credit vs income because then you may need to use the cards or whatever... but it may hurt getting a loan because they check your income but just to have high credit limits? theres no spot on your report for your income... i dont get how FICO would know? so much conflicting advice about finances and stuff...

  22. #22
    AudreyLeigh
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    Default Re: Pay High Interest to Build Credit???

    Quote Originally Posted by Lizette
    KBB tends to inflate the actual value. Most sellers use KBB to justify charging more than the market value.
    can give a reasonable market value for your vehicle.
    OK... Edmunds says $6300 which is still more than I paid... I got it on special marked down to $4995 from $7995...

  23. #23
    God/dess montythegeek's Avatar
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    Default Re: Pay High Interest to Build Credit???

    Scorpio is 100% correct when he says "The only value that matters is cash value."

    An item is worth what a willing buyer and willing seller can negotiate as a sales price! Anything else is just an appraisal. There are 10,000 dimensions of a vehicle which can alter a vehicle value compared to the average, mileage, past repairs, how well maintained, past flood damage, a scratch not well repaired, mufflers or brakes going bad. Color can matter--buyer A may like red and B hate it but accept it for $1000 off. If noone but you is willing to pay more than $4000 for the car it is worth $4000 in spite of what anyone else says it might be worth

    To correct a false impression, I did not say the car loan had a prepayment penalty--I said it COULD and the only way to know was to read the documents.

    An example of having too much available credit! If you can access $25K of credit you use 0% of, and have an income of $40K, and buy a car with a $300.mo payment. You could go out tomorrow and buy a $4K tv for yourself and one for a friend and some clothes and rack up $15-20k in debt and hurt your ability to repay the $300/mo after all other expenses are paid. The car financer does not have a veto over what you do AFTER you get the loan, so all they can do is control for possible things you could do.

  24. #24
    AudreyLeigh
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    Default Re: Pay High Interest to Build Credit???

    I think Dollar Den is my new fav area on SW. I LOVE talking finances... I should get a job as an accountant...lol...

    I see what you mean about cash value because I would pay more for an older Honda than a newer Hyundai or even Ford.. just because, well, its a HONDA... and I DID NOT want a red car but because it was so cheap I now have a candy apple red car..LOL... go figure...it does have high miles BUT.... it IS a HONDA...

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    God/dess Bunny's Avatar
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    Default Re: Pay High Interest to Build Credit???

    I read a lot about credit scores on artofcredit.com. It's all so confusing there is still a ton I don't know but I guess I have strong personal feelings about high-interest loans. I REFUSE to pay jacked up interest on anything. I guess it's a matter of principle for me not to agree to pay high interest. I would think if you pay off the loan early it would still be good for your credit but I don't know which is better. You could always get a credit card and keep a small balance on it to have more of a good history. After I filed Chapter 7 I got 3 credit cards and none have annual fees. The interest rates are shitty but I only have a few hundred dollars on one of them and pay it off in big chunks. One actually has a super shitty interest rate (like REALLY shitty) but I guess because I wasn't using it they gave me a 0% interest offer for a 3 month period. It happened right when my dog need a lot of veterinary care so I charged it and paid it off before the three months and they haven't gotten a penny of my money but they are reporting my good history to the credit bureaus. I haven't run my credit for a few months but before I filed being discharged in July of 2004 my scores were so shitty they were in the 400's. I had PERFECT A+ credit for years and then went with a debt management company who basically didn't pay my bills and kept my money for six months and shot my scores down to the 400's. The scores went up like 100 points as soon as my bankruptcy was discharged. Last I ran them they were around 650. Even though the scores aren't that bad a lot of people won't loan you money for so many years after a bankruptcy but I don't want much debt anyway.

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