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Member
onrails
Posts: 29
Registered: ‎01-30-2014
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Re: Help with plan to boost credit score

[ Edited ]

ShanetheMortgageMan wrote:

onrails wrote:

ShanetheMortgageMan wrote:

Yup, with $6k/mo of income.  45/45% is what I am using. 


I'm surprised it can go that high.  Not that we would want to.  We are trying to get into the 270,000 range.  I keep reading that front end ratios on a conventional are in the 30's.


Manual underwriting is 31/43%, which is what everyone safely references since debt ratios at that level are perfectly acceptable, however very few banks will manually underwrite a conventional loan as it's difficult to do, and so with automated underwriting approvals the max ratios are 44.99/49.99%... although above a 45% back-end ratio is difficult to get approved (need to be extremely well qualified).


Thanks Shane that's good info.  Seems kind of backwards to me but who am I to argue.  :smileyhappy:  Thanks for all your insight.

 

I believe at 270,000 sales price with 13,500 down we would be looking at a payment of about $1800.  That would put us at 30/39% after the reductions in debt I'm going to make.  Sounds like an easy approval if we can get that bump in credit scores.

Super Contributor
ShanetheMortgageMan
Posts: 8,011
Registered: ‎09-28-2007
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Re: Help with plan to boost credit score

Regular Contributor
n0smirc
Posts: 205
Registered: ‎08-22-2013
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Re: Help with plan to boost credit score


onrails wrote:

Hi there.  I've been lurking the forum for a few days now and would like some input on a strategy to boost my credit score for an upcoming home purchase.  My mortage banker came back with a middle score of 675 for me.  He told me I needed to get that a little higher (not quite sure how much higher) to qualify for a conventional mortgage with 5% down and not pay too much for it.  The main factors listed as hurting my score were "balances too high" and "too many accounts with balances".  

 

The good news is that we are already under contract to sell our current home and will net about $6000.  My mother has gifted us $20,000 that I will have in my account in the next couple of days.  In addition I have a tax return coming worth $3000.  So total I have about $29,000 to work with to pay down / pay off some cards and provide a down payment.  Monthly gross income is $8000.  I have $45,000 in a 401K.

 

My spouse is not working, but came in with a middle score of 725 so I assume we are fine there.

 

Here is my current debt not including the current mortgage that will be paid off at closing on the current home (BAL / Limit / Util %). 

 

Bank Credit Line : 950 / 1000 / 95%

CC1:  540 / 1800 / 30%

CC2:  470 / 800 / 59%

CC3:  8525 / 9300 / 92%

CC4:  2995 / 3550 / 84%

CC5:  2053 / 3800 / 54%

CC6:  3155 / 4000 / 79%

CC7:  1950 / ???? / ????

 

CC7 is an AMEX gold card.  $1950 is the amount I have in the "pay over time" portion.  Not sure how to calculate UTIL on that or if it's even calculated.  It shows a high balance on all three reports as 2478.  So maybe 79%?  Anybody know on this one?

 

The only other negative I have is a 30 day late on my mortgage from December 2008.  For some reason though on the report it says time since last negative is 3.2 years??

 

I'm assuming a purchase price of $270,000 so would need to keep $13,500 for a 5% down payment.  That leaves me with $14,500 to work with to improve my score.

 

One strategy I thought of was to pay every account down to a 30% UTIL and that would leave me enough to then pay off the bank credit line, CC1, CC2, CC5, and CC6 to zero.

 

I'd appreciate any advice.  Where am I going to get the biggest bang for my buck?  Any other comments?  potential to increase score?  How much do I need to increase it?  I've just about analyzed this to death in Excel. :smileyhappy:

 

Thanks!


I'm not sure that the NPSL Amex would be factored in on util but if it were me, I'd pay the Bank Credit Line, CC1, CC2, CC4, CC5, CC6 completely off to zero,m then pay off as much as I could on CC3.  If you have anywhere you can spare to pay a bit more of it off, then great. Otherwise, get all the new balances reporting and try not to charge up the cards again and once the new reporting values are in, see if you can get some CLI's with soft pulls only. (If they want to do a hard just say no thanks and move to the next card). This tactic might give you the util boost you need to up your scores pretty significantly. I'm not sure how CC3 lender will feel about this but ask them for a CLI anyways after everything updates on your CR. They may give you a bigger line.

 

At this point you're going to need to use your cards sparingly until you close. :smileyhappy: 

Member
onrails
Posts: 29
Registered: ‎01-30-2014
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Re: Help with plan to boost credit score


n0smirc wrote:

onrails wrote:

Hi there.  I've been lurking the forum for a few days now and would like some input on a strategy to boost my credit score for an upcoming home purchase.  My mortage banker came back with a middle score of 675 for me.  He told me I needed to get that a little higher (not quite sure how much higher) to qualify for a conventional mortgage with 5% down and not pay too much for it.  The main factors listed as hurting my score were "balances too high" and "too many accounts with balances".  

 

The good news is that we are already under contract to sell our current home and will net about $6000.  My mother has gifted us $20,000 that I will have in my account in the next couple of days.  In addition I have a tax return coming worth $3000.  So total I have about $29,000 to work with to pay down / pay off some cards and provide a down payment.  Monthly gross income is $8000.  I have $45,000 in a 401K.

 

My spouse is not working, but came in with a middle score of 725 so I assume we are fine there.

 

Here is my current debt not including the current mortgage that will be paid off at closing on the current home (BAL / Limit / Util %). 

 

Bank Credit Line : 950 / 1000 / 95%

CC1:  540 / 1800 / 30%

CC2:  470 / 800 / 59%

CC3:  8525 / 9300 / 92%

CC4:  2995 / 3550 / 84%

CC5:  2053 / 3800 / 54%

CC6:  3155 / 4000 / 79%

CC7:  1950 / ???? / ????

 

CC7 is an AMEX gold card.  $1950 is the amount I have in the "pay over time" portion.  Not sure how to calculate UTIL on that or if it's even calculated.  It shows a high balance on all three reports as 2478.  So maybe 79%?  Anybody know on this one?

 

The only other negative I have is a 30 day late on my mortgage from December 2008.  For some reason though on the report it says time since last negative is 3.2 years??

 

I'm assuming a purchase price of $270,000 so would need to keep $13,500 for a 5% down payment.  That leaves me with $14,500 to work with to improve my score.

 

One strategy I thought of was to pay every account down to a 30% UTIL and that would leave me enough to then pay off the bank credit line, CC1, CC2, CC5, and CC6 to zero.

 

I'd appreciate any advice.  Where am I going to get the biggest bang for my buck?  Any other comments?  potential to increase score?  How much do I need to increase it?  I've just about analyzed this to death in Excel. :smileyhappy:

 

Thanks!


I'm not sure that the NPSL Amex would be factored in on util but if it were me, I'd pay the Bank Credit Line, CC1, CC2, CC4, CC5, CC6 completely off to zero,m then pay off as much as I could on CC3.  If you have anywhere you can spare to pay a bit more of it off, then great. Otherwise, get all the new balances reporting and try not to charge up the cards again and once the new reporting values are in, see if you can get some CLI's with soft pulls only. (If they want to do a hard just say no thanks and move to the next card). This tactic might give you the util boost you need to up your scores pretty significantly. I'm not sure how CC3 lender will feel about this but ask them for a CLI anyways after everything updates on your CR. They may give you a bigger line.

 

At this point you're going to need to use your cards sparingly until you close. :smileyhappy: 


I kind of like that plan!  Doing it that way would still get me down to 35% util on CC3 and I would only show balances on CC3 and the AMEX.  I just recently got a CLI on CC3 so not sure if I could get another one but could ask.  As far as using the cards that shouldn't be a problem.  I've been paying them down for awhile now.   Thanks for the advice!

Member
onrails
Posts: 29
Registered: ‎01-30-2014
0

Re: Help with plan to boost credit score

He is another wrinkle I forgot about until just now.  CC5 is a "closed to further purchases" account because I opted out of the rate increase about 4 years ago. (It's at 8%)  So when I pay that one off, it will close and go away as available credit.  Not sure how it's calculating now.  Probably still best to just get rid of it.

Regular Contributor
n0smirc
Posts: 205
Registered: ‎08-22-2013
0

Re: Help with plan to boost credit score


onrails wrote:

He is another wrinkle I forgot about until just now.  CC5 is a "closed to further purchases" account because I opted out of the rate increase about 4 years ago. (It's at 8%)  So when I pay that one off, it will close and go away as available credit.  Not sure how it's calculating now.  Probably still best to just get rid of it.


This is iffy. I think it MAY be counted in your total available credit but it also may not. Have you purchased your equifax here? If so, with your current reason codes it's should be calculating your util ratio since it said yours was high. I have a positive reason code for my low balances and it calculates as so: 

 

Ratio of your revolving balances to your credit limits
1%

 

Run the numbers yourself and see if it matches with or without that closed CC limit. The key on optimum score is less than half of your CC's reporting a balance, that action will get rid of your too many with a balance reason. Next is get util below 9% overall if possible, but below 29% will improve your score as well too. Know, however, that one card with a very high balance with also make you lose points. I had this happen to me when I let one of my cards report almost maxed out. :smileyhappy: 

Member
onrails
Posts: 29
Registered: ‎01-30-2014
0

Re: Help with plan to boost credit score

Met with my LO today.  Very interesting.  As Shane suggested, he did have the score simulator.  First of all, since we are selling and not buying right away, he had it simulate paying our current mortgage completely off.  From 121,000 to $0.  That alone showed NO CHANGE.  I thought that was interesting.

 

Here is what it did recommend:

 

Pay Credit line to $0

Pay CC1 to $0

Pay CC2 to $0

Pay CC3 down to $2207 (24% util)

Pay CC4 down to 2094 (59% util)

Pay CC6 to $2306 (58% util)

 

Leave everything else as is.

 

Result:

 

Experian +60

Equifax +53

 

Yahoo!

 

That's leaves me some left over to work with if I need to go further but that should get me very close to 740 if the simulator is correct.  According to Shane here, and my LO it's usually pretty accurate.  I think I'm going to try that first and see what happens since I have a few months to wait.  I'll let you know how it turns out.

Established Member
tketch
Posts: 15
Registered: ‎11-29-2013
0

Re: Help with plan to boost credit score

Many lenders  look to front-end and back-end ratios as a guideline. 

 

Front end ratio is the ratio of just your mortgage with escrow payment to your monthly income.  lets just guess that you're getting into a mortgage for $256,500 (95% OF $270K) and its at 5% for 30 years. -which equates to a principal and interest payment of about $1,375 /month and say another $400 is due for taxes and insurance.  So about $1,775.00 total payment.  And you make $6,000  (ignoring the other $1k).   So the front end ratio would be $1,775$/ $6,000= 29.5%.    A good standard these days is anything less than 31%.   As long as you don't exeed  a total payment of   $1,860 you'll be in range

 

Backend ratio is the ratio of all your debt  payments to the total income.  Say your new mortage is as above at $1,775 and you add in the remaining debt payments that are anticiapted to be $550 , for a total of $2,325 .   The back end ratio is $2,325/$6,000=   38.75%.   Lenders like this number to be under 43%, which makes you good on this one too, as long as your are under $2580 on the total.

 

To boost your score the most get rid of the credit card balances totally.  Look to that 401k account if you have no other sources.  You now have about a 75% utilization on the cards.   Make it near 0 to get your best score. Leave a small amount (under $100) on just one card to show utilization.   I had similar amounts outstanding and got a 54-point FICO boost when I paid acconts off.  The results are immediate and occur just after the statement end dates.    I know there may be penalties if you have to withdraw from  the 401k.   But think about the interest rates you are paying on the credit cards and balance it alll against the loan you can get with an advanced FICO. 

 

I am concerned, too, about the amount of 5% you are paying down on the loan.   Will this leave you with a requirement for mortage insurance?    That's usually a very bad deal.   Sometimes you can borrow against a 401k for a mortgage.   Even with penalties, it might be worth it in the long run rather than paying PMI, sometimes required for the life of the loan.    Try to get a loan for only 80% tio avoid the PMI .

 

 

Member
onrails
Posts: 29
Registered: ‎01-30-2014
0

Re: Help with plan to boost credit score

[ Edited ]

I thought I would provide an update.  We started this process back in Jan.

 

We got two quotes for a loan.  One from the builders lender and another from our local lender we had been working with previously.  The closing cost assistance from the builder if we went with their lender was $6575.  If going with an outside lender, they would allow $3500. 

 

Despite the difference in closing assistence, after getting both quotes, the interest rates were exactly the same, and the amount needed to close was also just about the same since the builders lender was charging $2600 in origination fees vs $500 from our local guy.  Since the difference wasn't that much, we decided to stick with the guy we already had the good relationship with.  He had helped us a bit with getting our scores up, etc.

 

Well, last week, the builders lender contacted us wanting to know why we were not using them for our mortgage and I told them.  So they came back with an offer we could not refuse.

 

Conventional 30 year

5% down

3.999%

$9200 due at closing

 

Our current lender had us at 4.375% and $11500 due at closing.

 

We were already in a rate lock with our current lender and had submitted all of our paperwork.  I feel pretty bad about bailing on them, but we felt like we couldn't ignore thousands of dollars. 

 

Anyone been in a similiar situation on either end of the table?  I know it's just business, but it does feel a little personal.

 

At any rate (no pun uintended), we close on our new house on the 25th of July!  Can't wait!

New Contributor
mom22sonz
Posts: 64
Registered: ‎06-29-2014
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Re: Help with plan to boost credit score

thats wonderful!!!!


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