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Hi Everyone,
I have searched for hours upon hours trying to find answers to my question, with no real concrete advice. A quick back story...I, like many others on here, have made some bad decisions in the past regarding repayment of my student loans. Two in particular, went into default (the loan accounts were opened roughly 8 years ago when I was in school). Last year I finished rehab'ing one of the loans which was successful. In regards to the second loan, I neglected to repay anything due to one selfish excuse or another. After years of trying to repair my credit score, I have brought it up to its current 640. My better half has perfect credit and we are aware of the repercussions we will face when going to buy a house due to my credit.
Here is where I need help. We are planning on purchasing a home in January of 2015. The last defaulted loan has recently been picked up by Windham Professionals collection agency. I want to get this resolved and start the rehab process with them, but I am not sure whether this is the right thing to do as I fear it will significantly drop my credit score (or will it?). Should I wait until after we purchase our home to settle this debt, or will it be to my advantage to start the process now?
I just always hear people saying that 6+ months before purchasing a home, you should not make any significant changes that would affect your score.
Please help me!
Doing a rehab won't drop your credit score - in fact it should be a net positive because it will remove the default comments and collection agency reporting for the loan. You will want to get this resolved, because if you want to consider a loan with federal backing that requires a check of CAIVRS having a defaulted student loan will be a show stopper.
If you're concerned the rehab won't be complete by the time you want to purchase a home, and you can't or don't want to wait for the benefit of completing rehab before you apply, then I would consider consolidating the loan. Consolidation will resolve the default status immediately and open a new tradeline for the formerly defaulted loan. It doesn't come with any other improvements to your credit though, so the default comments, and collection agency account will remain on your report until the 7 year period expires.