Credit score drop 200pts w/short sale

[emb00]

Well I got the mail today and there was a letter form amex notifying me that they canceled my account. Reasons for their decision were:

Time since delinquency is too recent or unknown
Number of accounts with delinquency ( I have a 1^st & 2^nd mortgage)
Amount pass due on accounts
Serious delinquency

I am not surprised that my creditors have reacted to my delinquencies however, I am surprised that they didn’t at lease reduce my limit first. This got me to thinking so I pull my free credit report and both mortgage companies have reported me 60 days late. I have my 1^st with cititmortgage and 2^nd with chase, citi has reported paid in settlement/past due 60 days also account legally paid in full for less than full balance. I find this strange because my short sale has only been approved I am still living in the property it‘s schedule to close next month. My score has taken a nose dive in a two month period. October score was 754 today score is 556. I don’t think I will find an decent apartment to rent with this score.

[KT in CA]

We will miss our first payment next month, and I'm very curious to see what happens with my AMEX cards and credit in general. We have a lot of credit card debt, but no late payments and have always paid our bills on time and had good credit.

I'm in No California and I've had a property manager tell me that in our area they are working with people who are going into foreclosure, and if that is the only problem on the credit they can usually still work with them. She also told me that they may need a co-signer or maybe an extra month's rent, but that something can be worked out.

AMEX reduced my Blue card to just about the balance due a few months back, right after it was in the news that they were going to start doing that based on where customers shopped, credit info, etc. I think they based mine on too many balances. I really think the whole credit industry and scoring system is going to have to be changed. With millions of Americans going through this, they won't give anyone credit if they keep basing it on this scoring system. If you have a job, and have otherwise good credit, why not start out with a small credit line, instead of sending that initial credit card with the $15k limit in the first place? Check around in your area and see about rentals. You may find people willing to work with you, especially if your credit is good otherwise.

[The Professor]

Thanks for your post. It clearly identifies the downside to a short sale, and one that has been reported as less of a negative on a credit score than you are reporting. I have suspected that too favorable a spin has been placed on following this path as opposed to simply settling in with the fact that a process that ultimately leads to foreclosure, with non-recourse debt, will allow you to live in the premises "rent free" for an extended period of time with the potential of "keys for cash" at the end of the process.

Take care,

Daniel

[cdmosaic]

Just FYI for everyone reading this. My score has dropped closer to 250 points with 4 months deliquent on my 1st. All but 2 credit cards have reduced my limit to my balance and raised my percentage rate to the max. 2 other cards canceled my account and they had zero balances, never late.

It may in fact be difficult to rent as a result, but bare in my mind that landlords need tenants and having verifiable income will count for alot with the rise of unemployment.

hang in there, things will get better for all of us.

[KT in CA]

As far as I'm concerned they can keep the credit cards. We are better of without them anyway. I think if the income is there rentals will be available. Money talks. Hey, no credit card debt if they cancel all our cards, right? There are so many of us out there now and they need to keep those places filled.

[The Professor]

KT:

You are adopting a wise approach. What I would encourage and others to do is contact your credit card issuers, explain in general terms the financial situation you find yourself in, and seek an interest rate reduction that will allow you to pay off those card debts quicker.

Take care,

Daniel

[emb00]

KT:
I understand your point but in my situation I never had a problem managing my credit and my previous fico of 816 was proof of that. I wanted to keep a few credit cards as a tool of rebuilding my credit. That is the only purpose for me at this point. I knew that my score would take somewhat of a hit and I figured with other creditors reporting me paid or current would counteract some of the negative of the missed payments. I still have 3 cards that have not changed the terms but I’m expecting them to do so soon. I want my score back to the way it was and this will take time. I don’t know any other way I can do that without the use of creditors reporting me as paid on time over a period of time I know I can never get the delinquencies permanently removed. If anybody has any other suggestions please feel free to chime in.

[KT in CA]

I understand. We never had a problem managing our credit either. Our FICO scores are currently in mid 700's. I don't particularly care about the credit cards I have being cancelled. I'd actually rather not have them at this point. But I do care about the 2 cards that I have higher balances on moving me out of the nice zero interest I have until May and jacking it up to the highest rate possible. They can close the accounts though. I'll just get them paid off and be rid of them. I don't think that's fair, especially if your credit history with THEM has been excellent. The credit card companies have too much control over our lives and seem to raise limits at the drop of a hat for any reason. Used to be if you were late on their card they would raise it. Now it seems if you are late ANYWHERE they raise it. Or close it.
We are in our 40's and have all the material items that we need. From now on we will pay cash for things, don't need new cars, and may never buy a house again. We don't mind the time it will take to rebuild credit. It will happen but it will just take time.
I think out of all of this there will end up being a credit card company or two who see the opportunity to open accounts for all of the people like us, whose only mark on their credit is a foreclosure/mortgage issue, understands that we are still responsible people with jobs, and will make credit available to us.
In the end all of this is worth not being under this house for the next 30 years.

[civilguy]

KT, I agree w/ you. We are getting used to having bad credit. Sure it takes a little longer to find a place to rent and maybe we might run into a few other problems because of a low fico score. But it feels good to dump the credit cards and pay everything in cash, it's also teaching us to live within our means. My score has dropped almost 300 points but I don't really care, I'm beginning to think that this FICO scoring system is a scam to keep the masses in debt to the evil banks. Last month I had the waitress at Applebee's bragging to me about her 700 credit score and about her boyfriends rising 650 score and asked me how I got my platinum debit card (it's a DEBIT card, the bank gives it to you automatically if you deposit a lot of money in the account). In the back of my mind I was thinking "girl you make 8 bucks an hour bringing food to people, shouldn't you be more worried about more important things than trying to find ways to raise yours and your boyfriends FICO score".

[KT in CA]

I agree with everything you said, civilguy. And I really believe as a result of this whole mess, the whole credit scoring system is going to have to be revamped. The credit card companies keep taking credit from good customers and keep giving it to new customers who will probably default on their debts. At least we still pay ours. I just don't understand why they don't communicate a little..."Hey Mrs. Smith. We see you have something going on with your credit. You have been an excellent customer for 8 years, and we really don't want to close your account. Would you mind explaining your situation to us and maybe we can do something to prevent your credit card account with us from being closed? We can lower your available balance, or maybe increase your percentage rate a little. You've been a good customer and we'd like to return that loyalty." Yeah, I know that's a cold day in hell, but you can't fault a girl for wishin'.
I really could care less about the FICO score. Right now I'm worried about being able to find a home to rent in 6 months when we finally leave our house, and about our federal and state tax liability come April 2010.

[CaWalker]

Good thread to read.

Well, all those who've written that they've been good to the CC company all these years, think again. Their best customers are the ones who carry a big balance and never pay off the amount every month.

They make their money from the interest they get from such customers. And Amex of course also gets its money from the high % it charges the merchants.

My credit started in this country 8 years ago with a Visa card with $600 limit and an Amex card with $1200 limit. The Visa was eventually increased to $1000, and later to $2000. Whereas Amex kept increasing my limit without me asking them to do so. My current limit on my blue is 15K and I pay off everything at the end of the month. So am I a good customer? No.

The only money they've made out of me is what they charge the merchants. In fact, they give me back 3% off Gas + other discounts for whatever I purchase on another Amex Costco card I have. And let me buy stuff using the points I've earned using my Blue card.

Customers like me are one of the worst customers a business can have. They probably have to spend money to keep me each year.

So what happens when my credit score nose dives? They see my delinquent payments and decide that they could lose money if I continue using their cards. The easiest solution is to cancel the card if I have no balance.

[KT in CA]

So that is another question. Does it look better if we cancel cards? I have several small accounts that I will pay off in January and February with our mortgage payments, and I'm wondering if I should call and cancel them before they close the accounts on me.

[KT in CA]

And...I was reading today that if you receive a notice that the cc company is going to raise your rate, you can send a certified letter and opt out of the rate increase, and they keep your interest rate at what it is, BUT no more activity is allowed on it and they eventually close the account. I wonder how far that reaches, and if that would work with cc companies that raise our interest rates due to forclosure activity? Anyone tried it yet?

[cactus77727]

There is a lot of 'talk' about helping out us American peasants, but it's just talk. It will never happen. I was reading in the news today about new credit card laws for banks, but I wouldn't hold my breath.

To think back in April I had them all paid off! Oh the humanity! Makes my blood boil. I still have over $15,000 in available credit. It's madness.

But, I'll be their huckleberry. I'm planning on paying my current credit card balance off over time. But, if they jack my rate up to 33%, I'll declare bankruptcy quicker than you can say 'universal default'. When they mess with desparate people with nothing to lose, they'll lose too.

I hope the next balloon to burst is the consumer credit card bubble. I hope the credit card companies get defaulted to death. They deserve to die for the tyannical policies, gestapo tactics, and ridiculous fees and rates. They took advantage of my elderly mom for months, with repeated charges for 'credit insurance' she didn't need. We cancelled it three times before they did anything about. Then we cancelled the card. Criminals!

I especially hate American Express. As a former merchant, I never took their card, because their discount rate is higher than any other. Also, in my prosperous days back in the 1990's, I had an Amex Gold card, and paid $100 per year for it's 'membership privledges'. It was so lovely and shiney. What the hell was I thinking?!!! Die credit cards DIE!!!!!!

[crucifixion]

This concerns me greatly.

I've got about $50,000 in credit card debt-almost all related to education costs and then needing money when my wife lost her job.

But the good thing is that I took cash withdrawls from my cc so its basically like a loan. And I did this a few years ago when credit card companies were giving away credit like it was water.

So right now the debt is split with 3 cards, one at $28K, $14K, and$7K I believe. Great thing is that they are at 3.9% interest or lower and the interest is locked in for the life of the loan.

My concern- if I stop paying my mortgage, can the credit card companies change the terms and increase the interest? When I tookout the cash, the terms were 3.9%interest per year for thelife of the amount (until the balance is paid off).

So can they really increase that if I miss my mortgage payments?

[KT in CA]

I think they can. You'll have to read the "fine print" for your cards, but I think most of them have a universal default clause where they can raise your interest or close your account based on something that happens with another creditor. I have a card that has a low interest rate like yours until it's paid, and I think it's about $16k. I'm sure as soon as all this happens they are going to bump me out of that rate. I haven't looked yet at their fine print, so I need to check that out. My other large balance of $11k is with AMEX, and I know they will screw me so I'm not even going to look at that one. I'll just pay it off as soon as I can and be done with them.

[ultimate4799]

I did short sale way April 2008. Got 4 major credit cards and 2(highest debt) APR went up to 19%(from 5.99%)... Some will change terms and some won't... Also, they closed my account on most CC and limit the credit limit on all(though terms are the same)... FYI and hope this helps you a bit...

[ultimate4799]

Forgot to add, I never been delinquent on my CC, always on time... Only blemish on my credit is when I did short sale on my rental...

[AZChick]

Gee...a short sale will still get you penalized on your cc's? I thought I short sale wouldn't impact as much as a foreclosure....basically it seems short sale or foreclosure, either way, my credit is toast...good to know...

[AmericanNightmare]

AMEX dropped my credit limit from $9,100 to $1,900 this month. Experian is showing a delinquency from not paying my mortgage for the past 3 months. I never missed a payment or ever carried a CC balance.

[cactus77727]

There are many with AMEX cards who've had their credit limits reduced significantly since the collapse. And some who weren't late on anything. I've read many articles that Amex is in survival mode too. If you go to Google Finance and look in the discussions for AXP you'll see plenty of upset cardholders who've been axed for various reasons, or no reason at all.

Apparently, membership no longer has its privileges.

[KT in CA]

Well, they can take their membership privileges and shove them. Once they cancel my card I will never go back...and I will make sure to let them know the reason if they should ever happen to send me a cc app in the future.

[Ambling]

I recommend that anyone who still has good credit and expects it to decline for some reason should load up on credit cards from various banks. Then after the short sale or foreclosure you'll find out who your friends are.

Keep the cards that judge you by your relationship with them and cut up the cards that pry into your other affairs.

[KT in CA]

"Keep the cards that judge you by your relationship with them and cut up the cards that pry into your other affairs."

I love that. That is exactly what we will do. I'm wondering about store cards like Kohls and JC Pennys and what they will do after they see what's going on. They will be paid off pretty quickly and the balances aren't big on them at all. I'm just dreading the day I open that AMEX bill and my monthly payment that is at $235 per month jumps to $600 per month. I want to get it paid off soon but it's a balance transfer and they will dump me in that default rate faster than you can say "FICO score". Oh well. Like I said before, I'm done with AMEX.

[zelus70]

Hi,

I'm not going to stop paying my mortgage next month. Losing $1200 a month w a rental. I'm thinking I should do a balance transfer on my credit cards to a 0%. Any recommendations?