need advice on rebuilding credit for mortgage application in 2016

[rubensmadder]

Hi,

I am hoping someone can give me insight or advice. I am planning on buying a house in 2016, however, I have a low FICO score, 600 average for all 3 credit bureaus. My credit score is low due to bad financial decisions made while I was a medical student. I carried a number of credit cards that became maxed out and I was unable to pay, and these went into collections. I have about 15K of credit card debt that went into collections.  I am a new physician (1.5 years out of residency), and have been paying all my bills on time. I have automated deductions on 95% of my payment accounts (auto, utilities, student loans). I currently only have 1 credit card that gets paid off on a monthly basis. And with the plan of buying a home in the next year, I will have at least 100K to put down for a projected home with a purchase price of 450-500K. I understand that my credit score needs to be greatly improved, and I intend on settling/closing on the 15K in collections in the next 3 months. My question is: Is it possible for my credit score to increase if I settle the 15K in collections and keep an on time payment for all by existing accounts, and will this be enough to be preapproved for a mortgage?

Here are some details that may give a better picture of my situation:

Debt/Income Ratio: 17%

Annual Salary: 360K/year in a stable hospital position as a physician

Current Savings: 50K

Amount allocated for downpayment: 100K

Mortgage sought: 15yr fixed

Age of credit accounts: 14yrs

FICO: 600

Any insight would be greatly appreciated! Thanks.

[Anonymous]

---

@rubensmadder wrote:

Hi,

I am hoping someone can give me insight or advice. I am planning on buying a house in 2016, however, I have a low FICO score, 600 average for all 3 credit bureaus. My credit score is low due to bad financial decisions made while I was a medical student. I carried a number of credit cards that became maxed out and I was unable to pay, and these went into collections. I have about 15K of credit card debt that went into collections.  I am a new physician (1.5 years out of residency), and have been paying all my bills on time. I have automated deductions on 95% of my payment accounts (auto, utilities, student loans). I currently only have 1 credit card that gets paid off on a monthly basis. And with the plan of buying a home in the next year, I will have at least 100K to put down for a projected home with a purchase price of 450-500K. I understand that my credit score needs to be greatly improved, and I intend on settling/closing on the 15K in collections in the next 3 months. My question is: Is it possible for my credit score to increase if I settle the 15K in collections and keep an on time payment for all by existing accounts, and will this be enough to be preapproved for a mortgage?

Here are some details that may give a better picture of my situation:

Debt/Income Ratio: 17%

Annual Salary: 360K/year in a stable hospital position as a physician

Current Savings: 50K

Amount allocated for downpayment: 100K

Mortgage sought: 15yr fixed

Age of credit accounts: 14yrs

FICO: 600

Any insight would be greatly appreciated! Thanks.

---

Settle all collections and have it removed from all the reports if possible.  Then keep current on all payments.  If there are anhy lates, try writing goodwill letters to have those remove as well.  That will help your score alot. Also, while you are at it, keep utilization on your cards low as they play a huge part as to how credit scores are calculated.  All the best..

[StartingOver10]

Go to the rebuilding forum and look up the term PFD (Pay for Delete).  That is what you want to do with the collections. If they won't delete, then pay it and send GW (Good Will) letters to have the collection removed.

You have student loans and vehicle loans so you should be in good standing with the number of tradelines. I am not so sure that having only one cc will work to get your score up enough.

Seriously consider having a total of 3 cc accounts. You don't have to spend on them every month at all. You don't even need high limits, but with your income you should get decent limits. Try a Barclays card. You need to have the new credit lines so your score increases to a decent range (680 or more).

[rubensmadder]

Thanks guys. I'm more hopeful now, and can get started!

[Anonymous]

" You need to have the new credit lines so your score increases to a decent range (680 or more)."

I was advised to do this by my LO credit guru after she looked at my file.  I had good numbers but limited revolving credit activity was hurting my score.  I applied and received a Chase Freedom and a Cap 1 something, combined limits on both cards about 5k.  My score shot up at least 28pts across the board. YMMV.