Fixing Terrible Credit, but small outstanding debt

[Beau R.]

Hi,

I'm 26 years old and my credit is very bad, about a 400 Fico score. I ruined my credit during some rough times about 2 years ago, but have rebounded to put myself in a pretty good position. I'd like to start investing in real estate in 1-2 years. Although I don't make a lot of money, I'm extremely frugal and live in one of the lowest cost of living areas in the entire country, so I'm able to sock away $500+ every month. I actually have enough in cash to pay off the entirety of my debt (except the student loans) right now. I also invested in cryptocurrency in early 2017 before that market took off and have about $25,000 worth of cryptocurrency that I can partially withdraw to help build my credit. 

I have about $20,000 in student loan debt which has been on Income Based Repayment at times, although it has never been in default.

Aside from that, I have two credit card debts that are currently with collection agencies of about $1,200 and $350 each and about $200 more in miscelaneous debt with a collection agency. I was also frequently late with utility bills 2-3  years ago, although that has not been a problem lately.

 I'd like to get myself in a position where I can start investing in Real Estate in 1-2 years, but but I'm not sure how to best go about putting myself in a position to qualify for a real estate investment mortgage. I have a few very specific questions

1) How much should I focus on rebuilding personal credit, and how much should I focus on opening an LLC VS building business credit via something like a Dun and Bradstreet account? Can building credit under a brand new business name over the course of the next year go a long way toward obtaining a mortgage when the time comes?

2) Should I pay the full amount of the debt back to the collection agencies and hope that that drastically improves my score, or would I be better off negotiating a reduced payment with them? 

3) How can I use my current capital to take out secured loans to rebuild credit without paying ridiculous interest rates?

Thanks in advance for responses.

[Alexander Felice]

personal credit is critically important.

Even if you don't use banks, a private lender is not going to like you having poor repayment habits either, it's a must fix immediately situation imo

1. I wouldn't worry about LLC and business credit at all. Business credit isn't' that valuable and won't be to you for a long time. It's also unlikely that you'll be buying anything in a business name that won't require you to be a personal signer anyway.

2. if the collections are only ~2-3K I would pay them off asap. Still going to take 7 years for it to fall off your credit. Time wasted helps no one, especially once it's in default

3. with the amounts you have, you're not paying much in interest. You don't have a efficiency problem, you have a cleanup-old-mess problem. I would get it cleaned as soon as possible, I wouldn't take out new debt to fix old bad debt. With a 400 it's unlikely anyone will give you any kind of loan at all anyway.

start fixing this now, with ferocity, you're going to be feeling these effects for nearly a decade ahead, the sooner you fix the better.