About to kill my credit score with a short sale (any tips)...

[AsherO]

sell your condo to a bus. and let the bus do the short sale

How would that work? The bank has a lien on the property, and he owes the bank more than it's worth.

[dans fan]

you are right (if you transfer a mortgage and then you stop paying it it can make big prob) i meant convert it into a LLC it would probably be better for cr (bus liability and not personal )

[AsherO]

you are right (if you transfer a mortgage and then you stop paying it it can make big prob) i meant convert it into a LLC it would probably be better for cr (bus liability and not personal )

How can you convert a mortgage issued to you into an LLC? You know anyone who did this? It sounds like a huge loophole....

[TC610]

5. Does anyone have any experience in a similar situation with issuers closing cards? 

6. Does anyone have any recommendations for the situation I'll be in after the short sale --- open accounts with good cards but a lousy score.  How long will it take to increase my score?  Are there things I can do to increase it faster (i.e, carry a balance)? 

I've went through a short sale in June 2007, and it was reported to all 3 bureaus.  One bureau shows it as "Foreclosure" with no comments, the other two show it as "Closed/Write-off" with comments something to the effect of "Settled for less than agreed upon amount".

After it was reported, my Equifax score dropped from 768 to 540.  Luckily I got an auto loan right before it was reported (I qualified for an ultra low 2.9% APR) and I don't think I would've gotten that low rate with the short sale on my record.

I had 4 cards open with a total credit limit of about $35,000, but I paid them in full every month.  None of them were closed or had the limits reduced.

Carrying a balance will just lower your debt-to-credit ratio which isn't good.  If you can afford to pay them off every month but choose not to, then you're giving away money for interest that you otherwise wouldn't have to pay.

I discovered DansDeals last year and even with the negative information on my report, I was able to get approved for a handful of AMEX Plat/Golds and Chase cards over the year with no issues.  I've never been denied for a new credit card.  The AMEX cards had no limit and the Chase cards were around a $11,000 limit each. 

4 years after the short sale, my score is now around 640.  I haven't opened any new installment loans or mortgages and I continue to pay my balances in full every month.  If it weren't for the recent rash of hard pulls for the amazing Chase and Amex bonuses, it would be somewhat higher.

[Spiffster]

this isn't going to work.  you can't just "convert it into a LLC".  that sounds good but makes no sense.  you'd need an actual business entity to sell it to.  and no existing business is going to take the property knowing it's a loser - unless you know a business willing to take a huge hit.  and a newly made llc is not going to get financing without personally signing for it too.  and then you're in the same boat minus all the extra fees and charges.

you are right (if you transfer a mortgage and then you stop paying it it can make big prob) i meant convert it into a LLC it would probably be better for cr (bus liability and not personal )

[ChMo]

I've went through a short sale in June 2007, and it was reported to all 3 bureaus.

even with the negative information on my report, I was able to get approved for a handful of AMEX Plat/Golds and Chase cards over the year with no issues.  I've never been denied for a new credit card.

4 years after the short sale, my score is now around 640. 

The fact that TC610 was able to get so many approvals after a short sale, should make you feel much more hopeful. 

I think the keys, are to keep all other reporting spotless, and utilization low.  I have read that the major creditors that we often use (Chase, AMEX, Citi), use their own proprietary scoring models, that are tweaked for credit card repayment probabilities.  They do not just use your generic FICO score.  This should be good news in your case, as your proprietary "credit card risk score" will most likely be better than your generic FICO score.  I wouldn't be surprised to see you still able to get approvals, not too long after you take the short sale hit to your credit report.

And I would tell your short sale expert, to negotiate "paid as agreed" credit reporting, as part of your offer.  They probably won't go for it.  But, offer an extra $1,000 out of your own pocket, above the short sale price, to your existing mortgage holder, in exchange for positive credit reporting, and they might.

Lastly, you can hope that they screw up the credit reporting in any little way, then file an arbitration for erroneous reporting, then settle the arbitration with them in exchange for positive reporting.  The arbitration/lawsuit route is a pain in the ass, but if you are still getting denials in 6 to 12 months, it is probably worth the hassle and research time.

[AsherO]

I think the keys, are to keep all other reporting spotless, and utilization low.  I have read that the major creditors that we often use (Chase, AMEX, Citi), use their own proprietary scoring models, that are tweaked for credit card repayment probabilities.  They do not just use your generic FICO score.  This should be good news in your case, as your proprietary "credit card risk score" will most likely be better than your generic FICO score.  I wouldn't be surprised to see you still able to get approvals, not too long after you take the short sale hit to your credit report.

I say it all the time that they don't just look at your score when considering your application, so this proprietary score makes a lot of sense. Score is still important because we don't have the algorithm for their proprietary modeling and we can assume there is some correlation (same underlying variables) between the score they generate and your FICO score.

[ChMo]

I say it all the time that they don't just look at your score when considering your application, so this proprietary score makes a lot of sense. Score is still important because we don't have the algorithm for their proprietary modeling and we can assume there is some correlation (same underlying variables) between the score they generate and your FICO score.

I agree completely.  I once spoke with a guy who consulted on some of the proprietary scoring models, and he agreed there is generally a strong correlation between the proprietary scores, and your generic FICO score. 

He also said that the major issuers, especially AMEX, use your existing customer history with them, and your usage patterns, as additional underlying scoring variables, not available to FICO.

My main point is that two years after the short sale, I would expect mostly approvals, if everything else is clean.  Perhaps even sooner than two years.  Perhaps right away.

For the credit scoring nerds among us, you can get an idea of how card spending and usage patterns, and even home address location and tenure, might factor into different proprietary scoring models, by looking at this consumer segmentation model...

http://www.claritas.com/MyBestSegments/Default.jsp?ID=30&SubID=&pageName=Segment%2BLook-up

[AsherO]

I agree completely.  I once spoke with a guy who consulted on some of the proprietary scoring models, and he agreed there is generally a strong correlation between the proprietary scores, and your generic FICO score. 

He also said that the major issuers, especially AMEX, use your existing customer history with them, and your usage patterns, as additional underlying scoring variables, not available to FICO.

My main point is that two years after the short sale, I would expect mostly approvals, if everything else is clean.  Perhaps even sooner than two years.  Perhaps right away.

For the credit scoring nerds among us, you can get an idea of how card spending and usage patterns, and even home address location and tenure, might factor into different proprietary scoring models, by looking at this consumer segmentation model...

http://www.claritas.com/MyBestSegments/Default.jsp?ID=30&SubID=&pageName=Segment%2BLook-up

I once read somewhere (can't find it, so I'm not sure it's reliable) that the big CC issuers use spend categories as one of the factors in measuring your creditworthiness. e.g. shopping at liquor stores raises your risk, donating to charity lowers your risk etc.

[elikay]

I remeber reading that Amex woukd do such things (must have been on consumerist)

[josh nyc]

I remeber reading that Amex woukd do such things (must have been on consumerist)

They all do it but Amex is especially keen on tracking spending habits - know that annual report amex sends you every year? Well on their end they have that report on steroids. As was said though- as soon as they deem you creditworthy they will pump you with offers. Amex makes their 4% (visa/mc 2-2.5%) on purchases and they want you back in the fold asap.

[traveller34]

Thank you to everyone for your comments on this thread -- especially Spiffster and TC610.  Very helpful!

[traveller34]

Update:

I'll be 90 days past due on the 15th.  BofA (my first mortgage) has reported the 60 days delinquency and Wells (my second mortgage) is about a month behind (have only reported 30 days). 

I've had no trouble with recent credit checks for cell service, water, gas, home phone, rental property --- although I'm pretty sure their standards are not as high as credit card issuers. 

The only problem I've had has been with Citi. 

One card I've had with them for nearly 8 years has a $5600 balance that is at 1.9% for ever.  The credit line was $21,000 and they reduced it to $5800 on account of their review of my credit report that shows I am delinquent to another creditor.  That's fine.

About a week or so later I called to cancel my Citi AA Visa biz card to avoid the annual fee.   Instead I ended up converting it into a no-annual fee AT&T biz visa card.  The rep said no credit check was needed.  Great.

However, a few days after that, I received a letter indicating my Citi AA Amex Consumer card (which had a $15,500 limit) was being shut down b/c a review of my credit report shows I was delinquent.  Even though I never used this card after I reached the min spend and was planning on cancelling in October when the annual fee comes due, this one hurts because it was closed by the issuer. 

Just yesterday, I finally received the AT&T biz visa card in the mail.  It has a different number than the Citi AA Visa Biz card --- so I'm surprised this was issued after the Citi AA Amex consumer closure. 

My concerns now are: (1) other issuers closing my accounts which looks bad, (2) Cap One closing my Venture cards which has 110k points from the match your miles promotion.  If Cap One closes that account will I lose those points (all my other cards transfer points to an airline/hotel so they're safe)?

[Saver2000]

Update:



However, a few days after that, I received a letter indicating my Citi AA Amex Consumer card (which had a $15,500 limit) was being shut down b/c a review of my credit report shows I was delinquent.  Even though I never used this card after I reached the min spend and was planning on cancelling in October when the annual fee comes due, this one hurt

if u just got the letter in the mail, you should close it yourself before they do it.

[traveller34]

if u just got the letter in the mail, you should close it yourself before they do it.

I called and they said it was already closed. 

[Yisha]

why cant you just freeze your credit reports?

[Yisha]

so at least the CC issuers wont be able to review your old (good standing) accounts

[myb821]

Even when they r frozen a creditor can see ur report t review accounts u already have with them

[Yisha]

are they able to see it in full?

[ChMo]

are they able to see it in full?

As I understand it, yes, existing creditors get to pull your full report for account review purposes at any time.  It is a soft inquiry, and it looks like many creditors pull monthly for account reviews.  It is coded as A/R under soft inquiries on your credit reports.