Considering opening a $10,000 Secured credit line to Lower revolving utilization ratio.

[Anonymous]

I have about $16,000 in aging charge-offs ( 4-5 years old ) that are keeping my revolving utilization ratio around 60%. I'm loathsome to try to settle these accounts, I did settle an $11,000 charge off earlier this year, & then I had to fight to get it reported properly as  0 balance, took about 3 months and much headache.

We currently have about 7,000 in credit lines which we have under 1% utilization, I'm hopeful we may get some credit line increases in the next year, but I doubt they will be huge raises.

I have cash on hand as we're saving for a home purchase, and we need to get our fico up a bit more for conventional financing, so I'm considering opening a Wells Fargo secured credit line for $10,000, that should significantly lower total our utlization ratio. We could pull against our 401k to make up the extra 10k for downpayment, then close the credit line after the purchase to immediately refund the 401k within 60 days.

Any thoughts on this? anyone done anything similar? pitfalls?

[Revelate]

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@Anonymous wrote:

I have about $16,000 in aging charge-offs ( 4-5 years old ) that are keeping my revolving utilization ratio around 60%. I'm loathsome to try to settle these accounts, I did settle an $11,000 charge off earlier this year, & then I had to fight to get it reported properly as  0 balance, took about 3 months and much headache.

We currently have about 7,000 in credit lines which we have under 1% utilization, I'm hopeful we may get some credit line increases in the next year, but I doubt they will be huge raises.

I have cash on hand as we're saving for a home purchase, and we need to get our fico up a bit more for conventional financing, so I'm considering opening a Wells Fargo secured credit line for $10,000, that should significantly lower total our utlization ratio. We could pull against our 401k to make up the extra 10k for downpayment, then close the credit line after the purchase to immediately refund the 401k within 60 days.

Any thoughts on this? anyone done anything similar? pitfalls?

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Well hrm.

Land of theory only: bank accounts are pretty much hidden from everyone (including the IRS if there's no significant interest generated) unless you do something which shows you have the money.  Getting a secured card, shows there's 10K in an underlying deposit with the bank and it's entirely possible that would be enough of a showing that one of your creditors would go to court over it.  Maybe.

Beyond that it's not a terrible plan but how much FICO increase are we talking about needing and how long do you have before the mortgage app?  It's not going to massively change your revolving utilization metrics, we're looking at like 69% -> 48% by my napkin math, 50% might be a breakpoint on aggregate but that's uncertain.  It might be better to strategically open a couple non-trivial granting or easy CLI cards instead especially if there's time pre-mortgage.

[Anonymous]

Current FICO 9's are 640, 625, 628

Mortgage FICOS are 633, 578, 570'ish.

Need 2 of my mortgage FICOS Above 620 for conventional financing.

I hadn't though about the creditors seeing the deposit, as I didn't think the information on my credit report differentiates between secured and unsecured lines, are you sure they'll be able to tell? That's something I'll have to take into consideration.

Our projected buy date is March 2017.

It's interesting, using the "credit simulator", I get significant score boosts for paying down roughly $5,000 of my revolving utilization ( 25-35 points across all 3 bureaus ), with diminishing returns on amounts above that, for example putting into the calculator paying all $17,000 of my charged off revolving accounts only raises the scores an additional 5 points...

I'd like to settle one $9,000 charge off, but it's still held by BofA, not a collection company, I contacted them 6 months ago, and without acknowledging the debt, offered to settle for $1,000, they rejected that and came back with $6,000 & would not budge beyond that. $6,000 is a lot of money and would be nearly equivalent to the Upfront Mortgage insurance premium for an FHA loan, so I almost feel it would not be worth it to pay that much to get into a conventional loan. the debt is a little older now and I'm considering doing a written offer for settlement around $1500-$2000 but I really have some anxiety about poking the bear & I'm not sure BofA will be as willing as a CA would be to settle.

I did settle an $11,000 account for $2500 6 months ago, and it was sort of a headache getting it reporting to 0 balance, despite having a written contract for settlement they reported it as partial payment and I had to dispute with the crdit bureaus for some months to get it reporting 0 balance. It was a headache. I'm also going to get 1099'd for the forgiveness of about $8500 of that debt next year.

[Revelate]

I hear ya on the difficulty of dealing with lenders for such things, and while I don't fully agree on the FHA vs. conventional being a wash if you pay the upfront costs, it's at least a reasonable consideration to hold out on.

Most secured cards do report as secured; if you decide to pull this trick, the two that I'm aware of anyway which traditionally do not are Cap 1 (you can't do a 10K line there) and SDFCU... I'd double-check SDFCU over in CC's to make certain they don't have a secured tag on it and maybe ask for other options if you decide to go down that route.  I would be utterly shocked if WF didn't report as secured, as such I don't think they're a good choice for what you're trying to do.

[RonM21]

Op this is an interesting plan. The response above sounds reasonable in how to look at it. I'm not going.to add anything as I'm nof quite sure what the best answer is. However. i'm curious as to what you will finally decide to do, and how it will play out. I hope whatever you decide goes as planned.

[manyquestions]

This review states it reports as secured.

http://www.beverlyharzog.com/review-wells-fargo-secured-card/

[takeshi74]

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@Anonymous wrote:

pitfalls?

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You'd still have the charge offs which have a significant impact.  You don't want to settle them.  You want them removed, if possible.

[StartingOver10]

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@Anonymous wrote:

Current FICO 9's are 640, 625, 628

Mortgage FICOS are 633, 578, 570'ish.

Need 2 of my mortgage FICOS Above 620 for conventional financing.

I hadn't though about the creditors seeing the deposit, as I didn't think the information on my credit report differentiates between secured and unsecured lines, are you sure they'll be able to tell? That's something I'll have to take into consideration.

Our projected buy date is March 2017.

It's interesting, using the "credit simulator", I get significant score boosts for paying down roughly $5,000 of my revolving utilization ( 25-35 points across all 3 bureaus ), with diminishing returns on amounts above that, for example putting into the calculator paying all $17,000 of my charged off revolving accounts only raises the scores an additional 5 points...

I'd like to settle one $9,000 charge off, but it's still held by BofA, not a collection company, I contacted them 6 months ago, and without acknowledging the debt, offered to settle for $1,000, they rejected that and came back with $6,000 & would not budge beyond that. $6,000 is a lot of money and would be nearly equivalent to the Upfront Mortgage insurance premium for an FHA loan, so I almost feel it would not be worth it to pay that much to get into a conventional loan. the debt is a little older now and I'm considering doing a written offer for settlement around $1500-$2000 but I really have some anxiety about poking the bear & I'm not sure BofA will be as willing as a CA would be to settle.

I did settle an $11,000 account for $2500 6 months ago, and it was sort of a headache getting it reporting to 0 balance, despite having a written contract for settlement they reported it as partial payment and I had to dispute with the crdit bureaus for some months to get it reporting 0 balance. It was a headache. I'm also going to get 1099'd for the forgiveness of about $8500 of that debt next year.

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^^^This is true, you can get conventional financing with a mid-mortgage score of 620 but you may not like the rate nor the terms if the LTV is above 80%. This is why FHA loans are popular after a severe derog when the scores are still low. FHA loans automatically provide MI at a much lower rate than their conventional counterparts. You don't have to go through another approval process just to get MI like you do on a conventional loan. Of course, the downside is you have the MI for the life of the loan for FHA if you only put down the min downpayment of 3.5%.  Or 11 years if you put down 10% or more on a FHA loan.

So the critical question is:  What is your planned LTV?  

If you are required to have PMI (mortgage insurance) the lower your score and the higher the LTV, the more you will pay for PMI. Take a look at this PMI rate card to get an idea https://www.mgic.com/rates/rate-cards.html

The rates were changed in April 2016 (IIRC) to increase the rate for lower scores and reduce the rate for higher scores. You get the best PMI rates above 760. 

Also, check your public records now to see if any of the creditors got a judgment. It may or may not be on your credit report, but it will be in the public records, If there is one, you want to take care of it (before making any sort of mortgage loan application) and get a recorded satisfaction.  Your negotiating power goes to nil once you apply for  a mortgage or even mention you want to buy a home. 

[Anonymous]

@startingover10

We're going full 20% down, 15 year loan ( the interest spreads for sub-prime scores are less than the 30 year spreads, less lender overlays on 15 year loans ).

Which is why we'd really like to avoid FHA, as all our other ducks are in a row to avoid PMI.