How to best handle cash, payoffs or down payment?

[Anonymous]

My wife and I were in credit hell for several years. When I got my current job a year ago, I took as much money as I could afford to and sunk it into cleaning up our credit. Unfortunately, I didn't know about this forum until today, so I never sent PFD or GW letters along with the payoffs, as I did most of them over the phone or through automated processes. All of our collection accounts have been paid and we are beginning to work on obtaining a mortgage to purchase the home we live in right now. Our scores are atrocious, in the low 500s. We have a mobile home that we are attempting to sell and if the sale goes through, we would have about $17k to work with. We have several credit cards, a Discover with a $2500 limit that is closed by them and being paid as agreed on a payment plan for the next few years, an MBNA(now BofA) card with a $7500 limit that is also closed and being paid as agreed via a payment plan for the next several years, a Home Depot card that we used to fix our son's room with a $1500 limit and a quickly declining balance that is currently around 65% utilization(paying off $100 each month), and finally a MC with a $400 limit that I PIF religiously. I also have a note on my car through my credit union. The question comes in as to whether we would be better served by paying off the credit cards with the money from the sale of the trailer or by attempting to use it as a down payment? We have a sizable gift from my wife that will be used as a down payment and with the elimination of a load of the other debts, it would be easy to put several hundred a month away for the down payment. Any help you can give or suggest would be extremely appreciated.

[Caligula]

In my opinion, you need to work on getting your scores way up before you start trying to get a mortgage loan. Lenders are not handing out subprime loans to everyone and their mother like they were a couple years ago. I have had some luck disputing paid (and unpaid) collection accounts with the CRAs. If you haven't done this yet, do it! It is very likely that some of your collection accounts will magically disappear. How old are these collections? How many are there? Who are the creditors?

I think you should get those closed credit card accounts paid off. Why were they closed? I would also try to get the accounts reopened if possible (even if they give you a lower limit). If I'm reading this right, your only positive TLs are the $400 MC and car note. You need to get some more positive TLs to get those scores moving up into mortgage territory.

[Anonymous]

The chargeoffs are from a Capital One, AT & T and First Premier Bank(these are what I can remember off the top of my head) and then there are my student loans as well as my wife's student loans. The accounts that are on payment arrangements were closed due to delinquency / over the limit. According to the score simulator, my score would be well over 620 if I were to pay off the accounts, which would qualify me at the lenders I am looking at, but I am wondering if that will be enough.

[ReachingForTheStars]

Hi there. I am in the same boat. I was in the crapper with my scores; and didnt own anything, wanting to start looking at houses. I have found this forum to be GOLD on the info, and the motivation to get my scores up. Anyway, I just wanted to offer a suggestion - even though you have made arrangements, once you have PIF the old accounts, try the GW letters. I am doing the same thing, and will update once I get results - for better or worse! Good luck!

[Anonymous]

Even though my scores are pretty good, I am still in a $25.000 hole. I have a few months ago adopted the following strategy: From my paycheck, I deduct all my expenses for that month. I keep $25/week for play money. Every penny that is left after that goes to my credit cards, paying the highest interest one off first. I am going to suffer like this for about a year and a half, and then I'm done.

My point: payoff your debt. It is the way to go. You will suffer, but remember, the harder you suffer, the shorter it will take. See it as a challenge.

In the mean time you need to get rid of all the negative refferences that you have. Plead, beg, do whatever you have to. And then as has been said before, try to retain a long history, by reopening your cards.

Good luck!