Could someone review my 1.5 year plan to rebuild credit???

[Calidreaming]

Me and my hubby are looking to buy a home in 1.5 years with me being the only borrower on the mortgage.  In November 2013, I got an unfortunate black mark on my otherwise solid credit report after cosigning for an autoloan which was repoed.  I immediately redeemed it, but of course the damage was already done. 

I bought the stupid credit score product from this site in July , which had me at 711 for Transunion, 697 for Equifax, and 684 for Experian notwithstanding the repo.  I felt confident about my prospects and contacted a mortgage lender to get an idea of what I qualified for and was heartbroken after they pulled my actual numbers, which had me at 711 Transunion, 633 Equifax, and 611 Experian.  I felt like a total IDIOT for not understanding that I did not have my real scores and I am so thankful that we weren't planning on buying immediately anyway.  The lender was confident I could pull my score up significantly in a year's time, so I was looking for some pointers on my plan to rebuild.  I would like to get my score high enough so that we can avoid an FHA mortgage and qualify for conventional mortgages that only require a low down payment.  We don't mind so much about paying a slightly higher interest rate as we could use the additional deductions as long as mortgage rates stay relatively low.

I have a lot of credit card debt that I am in the process of paying down.  I currently owe $21K and will be at $7K in February.  This puts me at roughly 50% utilization of my available credit.  The $21K is spread over 3 cards.  In Feb, if I continue on the path I'm going, I should be at 7% spread over two cards.  In addition to the 3 cards with balances, I also have two other cards that don't have balances that I never use. 

Question 1:  I had been aiming to have the cards completely paid off before I go to apply for mortgage, but the mortgage loan company told me not to pay my cards down to zero but to aim for under 33% for each card.  For purposes of rebuilding my credit as quickly as possible, should I revise my plan for paying my cards completely and instead put that money aside toward a down payment and closing costs?  What would give me the max increase in my credit score??

Question 2:  I've read that companies not only look at your total credit utilization, but the number of cards you have with zero balances or above 33%.  I've also read that they like to see you utilizing all cards and paying off the balances each month.  Should I dust off those two cards I don't use and do some balance transfers so they wil look active?  If not a balance transfer, should I just put small balances on them and pay them off?  Should I apply for another credit card??  I'm reading so much information that I'm not sure applies to me.

Question 3:  How much can I realistically expect my score to improve in 1.5 years if I take the right steps now?  I'm hoping that my previous long credit history (20+ years of no derogatories) and the fact that it would have been over two years since the repo will count for something.

Question 4:  When the lender pulled my credit report, I was informed I had a medical collection on my record that I did not know about and I did not think was correct.  I disputed it online but it was found to be valid.  The lender said the collection was not affecting my score that much anyway.  Should I take further steps to get the item removed?  It's only $41 so I don't mind paying it just to get the company to remove it from my record if it will increase my score.  I was kind of in a panic when I filed the dispute but now I'm wondering what is the best course of action regarding it. 

Anything else I can do to improve my score?  Thanks so much for any advice on any of these questions.

[alienfico]

bumping

[andemalia]

We are rebuilding mode as well bouncing back from bad credit. I really don't know what advice to give you. If you have other cash reserves for the downpayment I would down the cards as much as I can maybe leave just one with a balance of less than 30% and pay the other ones to $0. Since you also have some time between now and when you will be ready to apply, I would see if I can get credit limit increases with the cards you actively use. That will raise your overall credit limit in addition to your individual limits especially on the cards that have a higher balance and decrease utlization giving you less "work" to do on that. You have plenty of time for inquiries to be affect you less in a year and a half when you will be ready for applying. I would work aggressively on the credit cards debts for half the time, and then work aggressively on adding to the downpayment the other half of the time. By then that medical collection will count even less, as well as the repo.

Just my $0.02

[Calidreaming]

Andemalia, thanks so much for the reply.  That really does make sense to pay down half and only have one with a blance.  I didn't think to request a increase to my credit limits.

On the collection, the thing I don't understand is that I've read that it doesn't matter how big the collection is and that one can tank your credit, but this one has been there for three years and I had no idea.  I didn't check my credit but I was able to buy a new car with a great interest rate, so it couldn't have hurt it that much.  I think I'm going to try to get it removed with a pfd just for the principle of it..

I want to wish you good luck also on your quest for a home.  I hope soon we can both add to the long list of people who are happily owning instead of renting that I've read about on this board.

[Anonymous]

I recommend against paying down some of the cards to $0.00.  That actually lowers your score & I've gotten that in writing from an official FICO report.  So instead of doing that, I recommend that if you want to pay down credit cards, to spread it around, and have each card under 15% balance.  That will look good b/c it shows that you actually use the card (good customer) but are responsible with the balance.  

[Anonymous]

I've read that doing balance transfers doesn't look good to lenders, b/c they would rather see you pay it down than to move it around from one card to another.  As far as the medical item in collections, I recommend to pay it, but to do a PFD letter first in writing & have them sign it, or have them send you a PFD letter.  Because just paying it won't help that much.  You want it deleted from your credit report would help significantly more.  Because even though it would be paid $0.00 balance due, it still shows as a negative account with missed payments and previous collection status for 7 years etc.  If you pay it but don't get the PFD, then you are less likely to have it deleted and may be stuck with it for the 7 years until it naturally falls off.

[Anonymous]

Another problem with transfer balances is that when you do that, you're opening a new card that let's you transfer the balance.  But then this new account will then lower your average age of account (AAOA) and will also hit you negatively as a Hard Pull inquiry, and will also show that you are potentially overextending yourself if you apply for that and then a home loan etc.  So those are possible negatives to consider.  If you're trying to get a home loan, I would just stick with the accounts that you have and pay them down, that way you have no new inquiries, and hopefully by the time you apply for the home loan, your older inquiries will fall off.

[Anonymous]

You should pay down all your cards to a $0 balance except one and keep the rest to under 30%.

[Calidreaming]

Thanks so much Tarheel and Timothylee.  Seems like everyone is in agreement that I should leave just one card with a 30% utilization rate.  I'm also relieved to read that I really don't need to be applying for any new credit cards or doing balance transfers.  That makes things a lot simpler.

Also, thanks for the advice about the pfd letter.  I sure hope they do this considering it's such a small amount and I've never gotten any letters about it.  That is just so weird to me.