topic Re: Need to rebuild 555 score - where to start? in Rebuilding Your Credit

Need to rebuild 555 score - where to start?

Anonymous — Sun, 17 Sep 2017 04:28:05 GMT

Hello,

I have a current score in the 555 range across all 3 reports, and I'm not sure where to start in rebuilding my credit. In my early twenties, I had minimal credit but what I did have was in good standing. The past few years have been rough due to crappy life situations and I neglected to take care of my credit. So, most negative items are largely from the past 2 years. I'm now in my late twenties, and I have no idea where to start picking myself back up again. I've made a bit of a mess, and any help would be greatly appreciated.

Here is my current standing:

3 open credit cards:
Kohls - $300 limit with $57 balance (2 30 day late payments, 2 60 day late payments - all from 2014)
Capital One - $500 limit with $450 balance (2 30 day late payments - from Nov '16 & June '17)
Wells Fargo - $1,100 limit with $1,000 balance (no late payments)

3 Closed credit cards (closed by creditor within the past 2 months):
Barclays - $2,000 limit with $3,100 balance (2 30 day later from Nov '16 & June '17, 1 60 day late July '17, 1 90 day late Aug '17). The status says "canceled by creditor"
Credit One - $700 limit with $964 balance (3 30 day late from Nov '16, June '17, July '17 and 1 60 day late Aug '17) The status says "canceled by creditor"
Target Store Card - $500 limit with $703 balance (this had late payments from '16 & '17 but no longer appear) the status says "canceled by creditor / charged off as bad debt"

1 auto loan:
Pended Credit Union - $2,400 balance (2 30 day lates April '17 & May '17, 1 60 day late June '17)

1 installment loan:
Timepayment - $1,500 balance (1 30 day late Apr '17, 1 60 day late May '17)

2 Collections:
State of MD Ccu (university collection) - $2,274 - added in May '14
State of MD ccu (university collection) - $663 balance - added in Feb '17

11 open student loans:
$47,000 balance - all good standing

3 inquires:
1 - Nov '15
1 - Sept '16
1 - Nov '16

My goal is to get above 580 to get a FHA loan, and I know I will need to pay off my open debts. I just don't know where to start, and what should be priority to see the biggest and fastest jump.

Can closed credit cards be removed from my report? Should I pay those off before my open cards?

Has anyone had success with removing late payments from those creditors? Are the late payments from my closed credit cards hurting my score?

My financial situation has improved and after paying monthly payments, I will have $1,000-$1,200 every month to use towards rebuilding my credit.

Please, any help and advice is needed!

Thank you!!

Re: Need to rebuild 555 score - where to start?

LindysMom — Sun, 17 Sep 2017 09:34:53 GMT

pay your car loan up to date, you dont want to risk repossession.

Re: Need to rebuild 555 score - where to start?

shadanat — Sun, 17 Sep 2017 13:04:23 GMT

Your utilization on the Capital One and Wells Fargo cards are high. You need to get your overall utilization to 10% or under. If you are paying just the minimum, I would suggest you double the payments and not use the cards for a while.

In regards to the closed cards, you should pay those down to zero. You are paying interest on a closed account and they probably are high interest rates.

As the previous poster suggest, make sure that you car loan is update to date. You don't want the extra headache of a repossession.

You don't want the closed accounts removed but you do want to pay them off especially if they are cards you have had for a while.

The biggest thing hurting your score are the collections. You won't see a jump in score until they are zero.

With $1,000 - $1,200 a month left over, you should be able to clear up 3 items in three month (Collection account, Target and Credit One). You should see a jump in score.

Next focus on the other collection item, the closed accounts and bringing you utilization down.

Re: Need to rebuild 555 score - where to start?

Anonymous — Sun, 17 Sep 2017 13:41:00 GMT

Just to add to shadanat suggestions, after all payments are caught up to be current, start writing goodwill letters for the late payments. Also, try PFD letters with the collections. Most definitely pay your current cards down to 10% or lower right away. Credit One seems to be open to removing their negative information. So, after the current cards are paid down, I would take the extra funds you have and one by one contact the creditors for PFD - even if you have to pay in full. Some may agree, others may not. For those that don't, just pay and start a goodwill campaign. I would start with credit one, then target, and move on the the $663 collection.

Re: Need to rebuild 555 score - where to start?

Anonymous — Mon, 18 Sep 2017 02:33:56 GMT

580 is the minimum for FHA, true, but the ratios they would use for that score will produce a very, very low pre-approval that most likely won't be useful for you depending on both, your income and the price of real estate in your target area. To avoid this reduced ratios you need a minimum of 620 score (they take the middle, not average, of your 3 scores, and they use older versions of FICO, so if 555 is what your mortgage loan originator told you, ok, but if you got it from some other source it's probably different than your actual score). Below 620, reduced ratios. 620+, full ratios.

As said before, 1st take care of car, repo will damage further your score.

2nd FHA won't finance if you have unpaid collections. I would use the opportunity to ask for a pay for delete. If you get it on both, your score can go up easily 100 points just from this. If you only get a settlement of paid in full your score will remain the same but at least FHA won't tell you they won't give you the loan based on unpaid collections.

3rd those closed accounts look like they're going to become collections too. You need to qualify at all times since pre-approval through closing date which will be 2 months after being under contract, at best. If a collections shows up during that time before closing, you won't be able to close until it gets fixed.

4th reduce (or better eliminate) the outstanding balances of CC's. Your lender might request you to do it at a later stage anyway, and only from this you can get 30+ points. This 4th point is not urgent as the other 3 are, but is highly beneficial.

I would consider the possibility of a personal loan to address these 4 points at once, and in that case you'd be interested in the LOWEST monthly payment possible for that loan, since that payment is going to be computed also in your pre-approval and, so you can get an idea, a payment of $100/mo can reduce your pre-approval around 5K, and $200/mo would reduce around 10K.

So if you take this route and you ask for a 12K loan to address these issues, try to get it at least for 72 months length (or more if possible) so that your monthly payment doesn't go higher than $250, and therefore doesn't lower that much your pre-approval, since you also have a car payment too, which will reduce your approval anywhere between 12-20K depending on how much that payment is.

In the rare event that the price point of the houses you want is very low relatively to your income, then you would be fine with both, the 580 score and a hypothetical high monthly payment of a personal loan. But usually this is not the case and people tend to wish always higher pre-approvals than what they really get. Therefore you should probably aim for 620+ by addressing the 4 points said above