Want to buy a home in September - need advice!

[Anonymous]

This is my first post. I've heard you guys give great, personalized advice, so here is my detailed information. Thanks in advance!!

Equifax credit score: 621

Goal: 700+

Length of credit history: 11 Years , 11 Months

Inquiries: 3 in the last 2 years, most recent was June 2010

Negative accounts: 4

Collections: 1

Car loan

Balance owed = $4,391

Limit = $14,663

This is paid on time each month. There are several previous late payments, but the most recent was March 2010. Would it help to dispute this? I talked to one of their reps on the phone at the time, and it was supposed to be a one-time deferred payment (one allowed per year), so the late wasn't supposed to be reported.

Clothing store credit card

Balance = $0

Limit = $250

Last late payment (150 days late) = March 2008

Furniture store credit card

Balance = $0

Limit = $1,867

Status = Charge Off/ Comments = "Paid charge off"

This obviously, was paid in full. I sent a goodwill letter but did not hear back.

Collection

Amount owed = $283

This was for an old cell phone account. I got a "settlement opportunity" today. It says if they receive $169.82 by 2/20/2011, they will consider the "account balace paid in full". Should I take advantage of this? Or other advice? The last date reported was 1/2011, so this isn't dropping off anytime soon, even though the account became delinquent in 2007.

Credit Card

Balance = $5,180

Limit = $5,500

No late payments reported. This card has a ridiculously high interest rate - 29%. I tried to get them to lower it, but they said no, that it was fair based on current federal rates. I also tried to get them to increase the limit, but was again told no, and that I could ask again in April. We (my husband and I) are getting about $1000 back from our taxes and I was thinking of putting it on this card to bring the balance down. We were going to use it to start our savings for a down payment on a house. It's also important to note that I have not used this card in almost a year (March 2010) because of the interest rate.

Line of credit/overdraft protection

Balance = $452.56 (reporting as $466 to Equifax)

Limit = $500

Money is automatically drafted from my account each month to go towards the balance. I could easily pay this off in about three months. How much would paying it off raise my score? I just looked, and it makes me sick that I paid $93 in interest to this last year!

Thanks for any and all advice!!

[JM-AM]

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@Anonymous wrote:

This is my first post. I've heard you guys give great, personalized advice, so here is my detailed information. Thanks in advance!!

Equifax credit score: 621

Goal: 700+

Length of credit history: 11 Years , 11 Months

Inquiries: 3 in the last 2 years, most recent was June 2010

Negative accounts: 4

Collections: 1

Car loan

Balance owed = $4,391

Limit = $14,663

This is paid on time each month. There are several previous late payments, but the most recent was March 2010. Would it help to dispute this? I talked to one of their reps on the phone at the time, and it was supposed to be a one-time deferred payment (one allowed per year), so the late wasn't supposed to be reported.

Send a GW letter seeing if they will remove. You can remind them they offered one month deferment.

Clothing store credit card

Balance = $0

Limit = $250

Last late payment (150 days late) = March 2008

Depending on the store CC they may have no more record of it after 2 years. If you list the store card others may know more. In the mean time also send a GW letter since it has a zero balance.

Furniture store credit card

Balance = $0

Limit = $1,867

Status = Charge Off/ Comments = "Paid charge off"

This obviously, was paid in full. I sent a goodwill letter but did not hear back.

Patience and persistence. Send again after 30-45 days have passed.

Collection

Amount owed = $283

This was for an old cell phone account. I got a "settlement opportunity" today. It says if they receive $169.82 by 2/20/2011, they will consider the "account balace paid in full". Should I take advantage of this? Or other advice? The last date reported was 1/2011, so this isn't dropping off anytime soon, even though the account became delinquent in 2007.

Counter offer with a PFD, if you just settle the account still stays on your reports. But a paid collection is still better then an unpaid collection under manual review with underwriters.

Credit Card

Balance = $5,180

Limit = $5,500

No late payments reported. This card has a ridiculously high interest rate - 29%. I tried to get them to lower it, but they said no, that it was fair based on current federal rates. I also tried to get them to increase the limit, but was again told no, and that I could ask again in April. We (my husband and I) are getting about $1000 back from our taxes and I was thinking of putting it on this card to bring the balance down. We were going to use it to start our savings for a down payment on a house. It's also important to note that I have not used this card in almost a year (March 2010) because of the interest rate.

This is what you need to pay down. Bringing this balance down will more then likely help your scores to improve. The goal is to keep your CC balances under 9%.

Line of credit/overdraft protection

Balance = $452.56 (reporting as $466 to Equifax)

Limit = $500

Money is automatically drafted from my account each month to go towards the balance. I could easily pay this off in about three months. How much would paying it off raise my score? I just looked, and it makes me sick that I paid $93 in interest to this last year!

Paying this off will cut back in your interest charges but will not have much of an impact on your scores. 

Thanks for any and all advice!!

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[Anonymous]

Thank you for the advice. The store credit card is New York and Company.

[RobertEG]

GW letters on old derogs can be done at any time, and would not be my first priority.  Exisiting debt in collection and accounts with high % util would be my suggested first focus.

If you are looking for a mortgage this year, it is almost a given that the loan officer will require payment of the collection debt.  How to adress its payment depends upon whether the debt is still within your state statute of limitations (SOL).  If the debt is still within SOL, then a PFD offer runs the risk of them just deciding to take legal action.  If outside of SOL, you have a defense against legal action, so then it is probably OK to counter with a PFD offer.

The high % util card is a killer on catch-up.  At a 29% APR, that is around 2.4% a month, which on a $5,100 balance, equates to around $120 a month just in interest.

That is money out-orf-pocket that does not reduce the principal balance.  That, next to the collection, would be a priority.

[OptimalCS]

I'm a big advocate of PAYING DEBT.

Trust me you will put yourself in the best position if you pay off your debt.

You'll also see a huge increase in your score. 30% of FICO score is "amount owed"

[RobertEG]

Just to clarify a bit on what AIM said, FICO does not directly score "debt owed."

It scores % utilizatilon of balances owed against the CL on the account.  A $1000 balance on a $20,000 CL card is only 5% util,  The same $1,000 balance on a $1,000 CL card is a devastating 100% util.

[Anonymous]

Thanks everyone!