We are three years past a significant personal financial crash, beyond our control, that saw us on the doorstep of bankruptcy in Wyoming. Because we were above the twelve-month income level we had to wait six months, without creating any more income, before we could file. During those six months, our attorney advised not to pay any bills except for our truck (2006 Chevrolet 2500HD pickup). For six months we lived with relatives in Colorado, unemployed due to the income restrictions. At the last moment, the mortgage holder on our Wyoming home released us from the mortgage and a small personal loan, so we did not file for bankruptcy. After that, we were able to pay off the remaining small accounts by dipping into retirement funds. Naturally, our credit rating took a huge hit.
We have a home in Alabama which we have rented out for twenty years. Wells-Fargo worked with us to modify the loan and we kept it. The home brings in about 350.00 per month after mortgage and expenses. We both got new minimum wage jobs, an apartment in Colorado, and worked for a year. We did not want to live in Colorado and moved to Oregon where we had lived before. I am retired, and bring in 20,500.00 a year with social security and some photography jobs. My wife plans to work for at least six more years and is employed. All in all, we realize about 60,000 in income.
We have worked hard to improve our credit score. Our FICO is 641 or Fair and continues to slowly rise. We do not have any loans except for the Alabama house and a small school loan. We do not have credit cards and pay for everything in cash. We have 25,000 in retirement accounts and 3,000 in emergency funds. We can put away 500 - 750 a month into the emergency fund.
So… for several reasons we need to trade in the truck. It has 180,000 miles on it and has the 6.0L engine that eats premium gas at 13 mpg. My wife is an in-home caregiver and she drives to three or four clients a day. We researched 2010 - 2012 Ford Escape Hybrids which run on regular and get 29 - 30 mpg. We plan to find one under 85,000 miles for 9,000 - 11,000 dollars. The truck has a 6,500 - 7,000 trade-in value so, we expect to pay 2,500 - 4,500 in cash. We are wondering if paying a down payment of 2,500 - 3,000 from our emergency fund and getting a loan for the remaining 2,000 - 3,000 would be a smart move? (we still have the retirement money available).
Would having a small three-year loan (about 100.00 per month) and paying it off on time every month help to increase our credit score? Will it increase significantly in three years to help get a lower rate on a home loan? Our long-range goal is to buy a small house in three years. Our current monthly rent on our apartment in Oregon is 1,250 but it will go up. I am a veteran so a VA loan will be available and our goals are for a home, under 200,000 with a monthly payment under 1,000. Or, if a new loan will not help the credit score should we just wait four or five months and pay cash for the remaining balance after the trade-in?
