I hope this works...

[tcbofade]

It's a long story, but there's a question coming...I promise.

I met the woman who is now my DW more than five years ago.  Her credit was a bit iffy.

Over the last five years, we've taken lots of strategic steps to improver her FICO scores...including, among other things, a car loan.

She had one "good" car loan in the past, but it was aging off of her credit reports, and she had no recent positive credit...so one step we took was purchasing an automobile together in April of 2011.  We knew at that moment that I would qualify for a lower rate on  my own, but part of the purpose was to help build her credit.

In September of 2011, we refinanced the vehicle at a lower rate (as her FICO scores continued to climb...)

Recently, she has decided that she'd like to purchase a home.  Her scores are in the mid 600's, no baddies in the last five years, and her util is somewhere in the 30's (percentage wise...). 

She spoke to a trusted realtor friend who sent her to a banker that he trusts...banker said that her scores are fine, but her DTI was a bit high and that adding a mortgage to her credit report would be very difficult.

Soooo, I am now refinancing the above mentioned automobile into my name only, which will remove that account from DW's credit report...  (She will have no active installment loans, but two paid off in the last year...)

Question: I believe that having no active installment loans reporting may negatively affect her FICO score, but I also believe that having two of them paid in full over the last 12 months or so will HELP her FICO score.

Is it a wash?  Will it help or hurt (her scores)?

[Quips]

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@tcbofade wrote:

It's a long story, but there's a question coming...I promise.

I met the woman who is now my DW more than five years ago.  Her credit was a bit iffy.

Over the last five years, we've taken lots of strategic steps to improver her FICO scores...including, among other things, a car loan.

She had one "good" car loan in the past, but it was aging off of her credit reports, and she had no recent positive credit...so one step we took was purchasing an automobile together in April of 2011.  We knew at that moment that I would qualify for a lower rate on  my own, but part of the purpose was to help build her credit.

In September of 2011, we refinanced the vehicle at a lower rate (as her FICO scores continued to climb...)

Recently, she has decided that she'd like to purchase a home.  Her scores are in the mid 600's, no baddies in the last five years, and her util is somewhere in the 30's (percentage wise...). 

She spoke to a trusted realtor friend who sent her to a banker that he trusts...banker said that her scores are fine, but her DTI was a bit high and that adding a mortgage to her credit report would be very difficult.

Soooo, I am now refinancing the above mentioned automobile into my name only, which will remove that account from DW's credit report...  (She will have no active installment loans, but two paid off in the last year...)

Question: I believe that having no active installment loans reporting may negatively affect her FICO score, but I also believe that having two of them paid in full over the last 12 months or so will HELP her FICO score.

Is it a wash?  Will it help or hurt (her scores)?

---

Her score may dip slightly from paying off the car but in this case it would be worth it to get her DTI to an acceptable range. If you can get her UTI down under 30% (or even better - under 10%) that would offset any downer from the auto loan payoff and should actually increase her score. Any reduction in her score from the car payoff will go away with time, especially when the new mortgage hits her report.

[jamie123]

If you are married this is how it works:

The lender will pull all 3 reports on each of you. They will use the middle scores only. They will use the lowest middle score whether it is husband's or wife's.

They will add your income together. They will add your debts together. DTI for one person is not calculated.

You need to try and get BOTH of your middle scores as high as possible.

Oh and....You should have run the credit score after the first test drive five years ago!

[thebanjoman]

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@tcbofade wrote:

...

Recently, she has decided that she'd like to purchase a home.  Her scores are in the mid 600's, no baddies in the last five years, and her util is somewhere in the 30's (percentage wise...). 

...

Soooo, I am now refinancing the above mentioned automobile into my name only, which will remove that account from DW's credit report...  (She will have no active installment loans, but two paid off in the last year...)

---

If the timeframe on the house purchase is out far enough, do you suppose she can qualify for a nice personal loan at a CU to refi her cards with, lowering UTI (possibly reducing percent of cards with balances), and hopefully in the process lowering her DTI through reduced minimum payments? It'll be a young, but active, installment loan plus lower utilization overall, plus lower interest payments out to creditors...

I have no idea the score-effect of a young installment loan vs the rest of the changes it could/would give, though.

[tcbofade]

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@jamie123 wrote:

If you are married this is how it works:

The lender will pull all 3 reports on each of you. They will use the middle scores only. They will use the lowest middle score whether it is husband's or wife's.

They will add your income together. They will add your debts together. DTI for one person is not calculated.

You need to try and get BOTH of your middle scores as high as possible.

Oh and....You should have run the credit score after the first test drive five years ago!

---

Hmm.  Actually, we asked the banker this very question.  According to the lender, it is perfectly acceptable for a married woman to purchase a home on her own.  My credit won't be seen or considered.

Maybe that's one of those things that varies by state?

[tcbofade]

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@thebanjoman wrote:

---

@tcbofade wrote:

...

Recently, she has decided that she'd like to purchase a home.  Her scores are in the mid 600's, no baddies in the last five years, and her util is somewhere in the 30's (percentage wise...). 

...

Soooo, I am now refinancing the above mentioned automobile into my name only, which will remove that account from DW's credit report...  (She will have no active installment loans, but two paid off in the last year...)

---

If the timeframe on the house purchase is out far enough, do you suppose she can qualify for a nice personal loan at a CU to refi her cards with, lowering UTI (possibly reducing percent of cards with balances), and hopefully in the process lowering her DTI through reduced minimum payments? It'll be a young, but active, installment loan plus lower utilization overall, plus lower interest payments out to creditors...

I have no idea the score-effect of a young installment loan vs the rest of the changes it could/would give, though.

---

Actually, we have already discussed part of this.

The whole "will the paid off car note raise or lower a Fico score" seems to be a ymmv situation.

IF her score drops, I had mentioned her taking out a small signature loan, putting the money in the bank, and using it to pay off the note, simply establishing another positive installment loan.

However, taking a bit larger note out to consolidate CC debt isn't a bad idea...thank you.

For the moment, we're going to wait and see if her score goes up or down when the auto loan shows PIF.

.

[drkaje]

My gut pretty much screams "NO!". Aside from the obvious reasons; does it really make sense to keep shuffling debt around forever while acquiring even more? I know someone's gonna chime in and say I'm harsh, they'll be building equity, can do a HELLOC, miracles happen, blah blah blah but. Even if they're right, you'd still be paying a buttload of interest and trading away whatever equity was in the home.

There's also the impact on your credit to consider. How's she gonna save up a down payment,  pay a mortgage, and service the debt under your name at the same time?

Sorry but I just can't see a situation where doing that would make sense... aside from being rich, LOL! Even then, it wouldn't make sense but there wouldn't be any long term ill-effects on your credit.

[jamie123]

A question if I may?

Why would you want your wife to buy a house without your name appearing on the mortgage? What's the angle I'm not seeing?

It very well may be legal, I'm not sure, but that is sooooo 2008ish! It is situations like this that caused the real estate crash of 2008 when the only requirement for a mortgage was that you were breathing.

In today's strict underwriting environment I just don't see this happening. You would have to be like the other poster mentioned, really rich, or willing to pay a MUCH higher interest rate for the mortgage IF you could find a lender to even underwrite this mortgage.

[Asailorshort]

I can't help but chime in now. I had the same initial reaction as jamie123 as to why get  the mortgage in wife's name only if it was going to be diificult given her dti. However, I can think of a few scenarios where it might make sense in a specific situation. Perhaps it's a family home that she wants to purchase and therefor doesn't want it to be a marital asset.  Perhaps her scores are better than his. Perhaps he's  a foreign national and it would be more complicated to have his name on it. Perhaps they live near a state border and she wants the tax advantage of the state the home is in but he needs to remain in the other state for business purposes.  Perhaps she earns significantly more than him or his job is paid under the table.  I'm not sure about the legalities of each situation, but if OP were asking about buying a home without DW on mortgage,  I'm wondering if ppl would question that. 

[Asailorshort]

Ok a couple more things, first I want to add that my previous post wasn't meant to be an attack on jamie123 or anyone else. Ihad the same initial reaction too. Was just making social commentary on whether reactions be different if genders were reversed.

Second, to answer OP's question, she may see a small dip in score by not having an open installment but it would certainly help her dti. However, instead of doing all that refinancing, why not just concentrate on paying her current cc's to less than 10%.  Then both her dti and score will improve.