Am I wasting my time?

jovencita24 · ‎09-07-2009

I went house hunting this weekend and found my dream home. It even has a home warranty for 2 years after purchase and the seller is covering 7K in closing costs. The problem? My FICO. I posted before about how my scores went down terribly after being overseas and having late payments. Even GMAC told me that their minimum score to work with is 600--and my mid score was a 588. GMAC wasn't the lender that pulled my scores, though.

I applied with my credit union after the loan officer told me they have a minimum score of 550 that they can work with, depending on other factors. The downside of this is that the credit union requires 10% down, instead of an FHA loan that has the 3.5%. On the house, which is 192K...that ends up being a big chunk of change. We decided to have a yard sale and sell furniture and electronics that we are not using. So far we have made $800!

My question is this...should I use the extra money we are getting in and pay down my credit cards and try and apply with GMAC as the lender? Should I formally apply with GMAC now on the off chance that they get different results than the lender that pulled my credit? Or is it unlikely that there will be a 12 point increase in my score with another lender? We could miss out on this particular house, but that is o.k. i guess. If cards start getting paid, how long does it take to make a difference to the score? I have played with the score calulator on this site, and it says that a 10K reduction in my debt would make my score jump dramatically. If I paid that, how long would it take for my scores to go up? How much would they really go up? My current debt is about 29k, plus 20K in student loans, with 79% utilization.

OR...should I save my money for a potential 10% down payment? I know credit unions can sometimes be a little more forgiving-especially when that is your main account. I just feel so confused.

Anonymous · ‎09-07-2009

Some folks have reported they gain about 10 points for every 10% decrease in utilization. The score increase wouldn't show up until the credit card companies report the balances. This typically happens once a month when your statement closes. Loan officers can order rapid re-scores if you want to pay off the debt and see the results faster. It is my understanding that they can sometimes be reluctant to do this as it costs them for each line they have to get updated. Before making any big moves, you might talk with someone at GMAC and see what they think.. Maybe they can look at your big picture and make sure everything else lines up as the score is only one piece of the puzzle. Good luck!

Anonymous · ‎09-08-2009

Youre in a little bit of a tough spot. Having said that, do you have any money saved to pay down CC? You really need 620. Lowering UTIL is the fastest way (if you have the $$) to raise your scores. How old and how bad are the lates? Do you have lates within the last 12 months? If you do, then that is another hurdle jto jump over. I gain 10 points for every 10% I pay down in CC debt with EQ. With TU about 6 points. It all depends on other factors. Do you have any items that can be disputed on your report? How about collections. You need to post more information on what is on your credit reports so that others can chime in. You should probably post in the "rebuilding your credit" section as well. There are many helpful individuals that can guide you on raising your scores. I have gone up 83 points since June. You must post all the negatives on your report....

jovencita24 · ‎09-08-2009

I have had credit for 12 years. Last year while overseas for work, I have late payments on my accounts--all but 3 of 14 accounts. Some are 30 days late, some were 60, and one had a 90 days late. The lates were between October 2008 and January 2009. I have been perfect with payments since February--and for the 12 years prior to this unfortunate span of lates. I have no collections or judgments. I also, upon bad advice, closed all of my open lines of credit (credit cards). Some are still showing on the report as open...and that may be the only thing helping my score at all. I have 79% utilization.

I can dispute some items, and I will write a goodwill letter for the one account from that time that is now paid in full. I can pay them off slowly, but I don't have cash reserves to make a huge payment right now. My mortgage lady said that another few months and 8-10K off of my debt (bringing everything down to 40%) would help me get to that magical 620 range. Plus, my household income will raise nearly $15K per year by next spring (bringing us to 145K per year). All told--I think that I may not realize my dream of home ownership for another 9 months or so. BUT--it will just give me some time to get the scores as high as I can to get a better rate. I will continue to post, but thank you all for your advice. It is helping me see the light at the end of the tunnel!

Anonymous · ‎09-08-2009

The advice your LO is giving is sound. Always keep in mind that the stronger your file, the better the chances are for approval. There have been a few posts of people getting approved even with lates within the last year but they had compensating factors like a big down payment, reserves, low DTI and high income. Your LO should know when you are ready. Make sure it is someone with experience. Paying down your high UTIL will help a lot. Also when the lates hit a year you may see a score increase. (I speak from experience) All the better reason to wait. Many people are trying to get in to a home for the tax credit but they may not realize they werent ready. By having a stronger file meaning a year no lates, reserves, low DTI, more $ in a 401K etc you stand a better chance and you may have more choices. Good luck and keep us posted.