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First time home buyer....yes I a noob to this!

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Anonymous
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First time home buyer....yes I a noob to this!

Situation:

 

I have been married for about a year. I work at home, wife works for a government contractor. She has a larger income than I…. both have bad credit. Have an opportunity to buy a great home. We came into some money that will pay off most of her debt. We are members of a local Credit Union of 3 years that we have a car and motorcycle loan (in good standing). Is it true if we pay off most of her dept that her credit score will still appear low? What is the best approach to the situation? Pay off loans and try to get the listing remove and if so how do we do it? Please help.

 

Note: We qualify for a VA Loan. We have a 3month window to purchase home. And thank you for taking the time to respond.

Message Edited by itrailblaze on 04-27-2009 08:53 AM
Message 1 of 5
4 REPLIES 4
Anonymous
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Re: First time home buyer....yes I a noob to this!

itrailblaze,

 

I'm sure the seasoned pros will be willing to help but, they need specfics.  Who do you owe?  How much?  What's in collections?  Are these credit cards ?? How old are they?  You don't want to just start paying off old debt or collections without some understanding of how your credit score would react.  After you chime in with your accounts read fico 101 and the list of abbreviations.  This would help out a lot.

Message 2 of 5
Anonymous
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Re: First time home buyer....yes I a noob to this!

Saying "bad credit" can mean oodles of things. It can mean over $15K in collections alone, maxxed out credit cards, a gazillion recent lates on credit accounts or 15 tax liens.

What are your and her baddies? Any recent lates? Cards maxxed out? No credit cards (they help your FICO scores -- FICO likes to see a nice mix of credit types)? A recent tax lien or judgment?

Like Gigi said, we need more info!!
Message 3 of 5
Anonymous
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Re: First time home buyer....yes I a noob to this!

Ok this is the wife with more detailed information.

 

- I have 7 credit cards total on my record. One in good standing with my credit union ,a limit of $3000. 95% of it is used.The other 4 credit cards are in collections. I have called and discussed possible settlement amounts, but made no actions yet. The total of the amounts due is $7100. I have 2 very old (more than 9 years) charged off credit cards that are still appearing on my credit report.

- I have about  $1300 in other collections debt (Medical, old Gas bill, Phone bill)

- I have 2 judgements that have just been paid in full. I only have written confirmation of one right now, the other will be closed out on June 18, paid in full.  

-  I CAN afford to pay the settlement amounts for the credit cards, just not the full balances.

 

So I guess our question is, Is it a good idea to pay these credit cards and other debts with the settlement amounts or, did paying off the judgements give us enough to get our score up to 600? Will paying the settlement amounts look good if paid or does that do more damage? Should I go with the oldest debt first or the most recent? Currently, my score is coming up to about 500. Thanks for your help on this.

Message 4 of 5
Anonymous
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Re: First time home buyer....yes I a noob to this!


@Anonymous wrote:

Ok this is the wife with more detailed information.

 

- I have 7 credit cards total on my record. One in good standing with my credit union ,a limit of $3000. 95% of it is used.The other 4 credit cards are in collections. I have called and discussed possible settlement amounts, but made no actions yet. The total of the amounts due is $7100. I have 2 very old (more than 9 years) charged off credit cards that are still appearing on my credit report.

- I have about  $1300 in other collections debt (Medical, old Gas bill, Phone bill)

- I have 2 judgements that have just been paid in full. I only have written confirmation of one right now, the other will be closed out on June 18, paid in full.  

-  I CAN afford to pay the settlement amounts for the credit cards, just not the full balances.

 

So I guess our question is, Is it a good idea to pay these credit cards and other debts with the settlement amounts or, did paying off the judgements give us enough to get our score up to 600? Will paying the settlement amounts look good if paid or does that do more damage? Should I go with the oldest debt first or the most recent? Currently, my score is coming up to about 500. Thanks for your help on this.



Well, yes and no.

 

No, because FICO will still see those charged off accounts the same -- paid or unpaid, they still give you the same score. Plus, when you *do* pay them, once the accounts are updated as "paid." FICO will see them as NEW collections/charge-offs and ding your scores even further.

 

Yes, because if they ARE charge-offs, they're being factored into your credit utilization. FICO likes to see VERY little credit being used (but being used). Usually, 9% utilization is the magic number.

 

But with COs, its seen as being completely maxxed out. So for those 3 CCs, you're sitting at 100% utilization. The only way you could possibly bring down your utilization without paying them off (or settling) would be to **completely** pay off your one CC. To zero.

 

If you're willing to wait 3 months or so before you try applying for a mortgage approval, I'd pay your good-standing CC down as low as you can, and then toss the remaining funds you have (minus your funds for closing/down payment)  at the old COs. While you *will* see an initial score plunge *possibly* with them updating with the CRAs (and looking "new" to FICO), you *will* lower your utilization significantly.

 

You should get at least 60 points (or more) for paying your utilization down to 10% overall. Actually, probably more like 100 points.

 

Unless those two 9-year old CCs ended on a high note/good standing account, they should no longer be on your CRs. I'd wait to dispute them off, though, since they could be contributing to your length of credit history.

 

For the real collections (meaning, NOT charge-offs) do NOT pay them unless your file comes back from underwriting with paying them as a condition to close (meaning, you have to pay them at the closing table in order to be allowed to close on a home). Chances are, your LO would just tell you to leave'em alone. They're not very high and since you're saying they're old, probably too old for the creditors/CAs to sue for.

 

Like with the COs we talked about above, paying those collections, once they update as "paid" with the CRAs, could whack your score very badly.

Message 5 of 5
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