Consolidate vs. Rehab

[gabbismommy01]

Ok so I have 2 student loans that went into default. When faced with the option to rehab or consolidate which is the best choice as far as credit score outocome and why? I am under the impression from posts I read that rehab seems to be the best option, however I would like to purchase a house ASAP and am wondering if consolidation is better since that process is a lot quicker. Any info appreciated!

[Sock]

Rehab is better, because after 9 months of payments, the late payments leading up the the defaults will be removed and the account statuses will be updated to show that you are paying as agreed.

A consolidation "may" make your payments easier on you, but you have to weight that against how much you think you'll save month to month, and how much that will help towards your payments on a mortgage.

It may be worthwhile to consider too, what percentage rate you qualify for today if you WERE qualified to a mortgage, and compare that with what you think you may get 10 months from now with better credit- considering of course, that interest rates are pretty much predicted to go nowhere but up.

[scvbd99]

If you can wait a year to buy a house, it would be best to go through rehab, IMO.  I say a year because that's about how long the whole process will probably take, give or take a month. 

In most cases, rehabbing will help your credit score more than consolidating out of default, and a better credit score can lead to a lower interest rate on a mortgage.

How much rehab will help your credit score varies HIGHLY, but I can tell you that I had 18 defaulted student loan tradelines at this point last year.   My score went from the low 550s to about 700 since I finished rehabbing all of them.  I'm not saying that's how much improvement you'll get because I don't know your entire credit history, but I wanted to give you an example.    

***and to clarify what Sock said, the only negative reporting they MUST get rid of after you complete rehab is notations about default and/or collection status while in default.  It's up to the servicer of the loans as to whether or not they also delete late payment history (30/60/90/120/etc) before you went into default.  

[gabbismommy01]

Thanks for the info it helps alot! I am not to worried about interest rates or anything like that because we are using my hubby's VA loan, so I just need a 620 to qualify and right now I am in like 550's. His credit is good , mine is just the one holding us back. Some of it is due to these loans I am sure , but some is my high credit balances which I plan to pay down very soon.

So the consensus seems to be...rehab will result in better score, it just takes much longer and consolidating is quicker but may not imrpove score much?

Has anyone consolidated out of default and if so , what kind of score increase did you see?