Four years ago when I bought my house I had a credit score north of 800. Soon after, when I noticed my credit card interest rate humped from 5% to 27%, I called them angry and (stupidly) shuttered the account. I then pulled my credit score and noticed I had an unpaid collection from PayPal (i.e.GE Finance). I'd used PayPal, as most people do, to sell and buy things on Ebay. It turns out I had purchased a pair of concert tickets for $26 when I'd only had $10 in my account. Instead of using the $10 and taking the balance from either my bank account or credit card -- which were linked to the PayPal account -- Paypal extended me credit. This, even though their terms of service clearly state a default order of preference of types of accounts they deduct from when there is a negative balance. In sum, I was extended credit on a Paypal charge account I neither applied nor asked for. As soon as I learned of the past due account I contacted the collection agency and paid in full. I then disputed the account to the CRAs to no avail, and sent PayPal an angry letter, which resulted in a standard reply letter confirming the account. Now, it's four years later and the account is still dragging down my credit, as is the fact that I cancelled my long-standing credit card with an $8,100 limit. Are there any other measures I can take? Would it be worth it to take PayPal to small claims court. Some other background information. After getting burned by PayPal, I must admit I let my credit go to pot. My current score is 600. I hope to refinance in a year, and besides the PayPal issue, I have a few others: * I have 7 recent 30-day lates on my mortgage, and my CR indicates I am currently 30 days late (something that will be rectified once it is updated by my mortgage lender). * I only have a total of $3,000 in credit limits on my two credit cards (down from about $15,000 four years ago); one is 97% utilized (will lower when updated), the other is 15% utilized. * I have one 30-day late on one credit card from seven months ago, and 30-day late from two months ago on the other. * My oldest open credit card is little more than two years old. * I have one 60-day late on one student loan from about 7 months ago, and two 60-day lates on the other one from about the same time period. This is currently a source of huge frustration, and I'm willing to do whatever is necessary to rectify the situation. Thanks a bunch in advance!
Sorry to hear about the PayPal situation. How frustrating! I can't say I'm familiar with how PayPal extends credit automatically, but it sounds like a total ripoff to me. That said, the fact that you paid off the debt already and it sounds like it's been several years since you paid it off too, will make it more difficult to fight at this point. Frankly, all the recent late pays on your credit reports are probably hurting your credit scores more than this old account. The high credit utilization is really hurting you too. Focus on getting your credit utilization down under 10% and making all your payments on time for the next 6-12 months, and you should begin to see some real improvement in your scores.
Thanks for the helpful reply, Joshua. As my credit score was still 792 three years ago after I paid the PayPal collection. Regarding the late payments, I ran perfect payment history for the next two years under the hypothetical tool provided by Credit Karma, and my score improved not at all. Am I correct in assuming that this is a different model than is currently used, and the latter favors recent history more? Put a different way, under the vantage score, I should see some improvement with perfect payment history in 6-12 months. By the way, I should be able to get my credit cards under 10% within 6 weeks. We'll see how much that helps. Thanks again for -- my lone -- response.
Oops, that should read, "As my credit score was still 792 three years ago after I paid the PayPal collection, it makes sense that it's not a huge factor in my low score."
CreditKarma isn't based on the FICO credit-scoring model, and I frankly wouldn't rely much on their hypothetical tool either. Payment history accounts for the largest percentage of your FICO scores, so making on-time payments for all your credit cards, student loans, auto loans, etc. will most certainly have a positive effect on your credit scores as time goes by. Your credit utilization is the next biggest factor in your FICO scores, so getting your ratio down under 10% should provide a nice boost as well.
The model they use, as you may know, is a percentage of payments that were late of total payments on record. AT 92.something% now, and 5 payments a month, adding 60 on-time payments won't break the 97% mark, which would lift me up a bracket. But again, that's their scoring model, not FICO's.
