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Mortgage fico score Advise

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jules79
Valued Member

Mortgage fico score Advise

I will be applying for a mortgage soon (FHA). My FICO mortgage scores are abysmal (628, 589, and 598). My charge-off CC debts have haunted my FICO score since they are reported each month. These 7 charged-off credit are rolling into the 6th year and obviously will be deleted at their 7-year maturity.

 

(a) In 2 weeks, i am settling ALL of my 7 charged-off credit cards from $110k to $0 balance.

 

(b) I also paid off 3 installment loans today ($8.5k to $0 ), which NOW leaves me with a $14k student loan (monthly payment is $115/mth).

 

(c) 2 personal credit cards reporting @ ($0.00 bal) and 1 AUTH credit card with 1% bal (AZE0).

 

My main questions are:

(1) Since I am ONLY settling (not paying off) those (7) charged-offs, which are 6 years old. How much range would you think my FICO mortgage score will change (increase)?

 

(2) Will the 3 paid-off installment loans help move the needle on the Fico mortgage score?...

 

*Bottom line, i need to have my score up to 680 or more to get a decent rate and hopefully some down-payment/closing costs assistance *

4 REPLIES 4
ShanetheMortgageMan
Super Contributor

Re: Mortgage fico score Advise

Are you saying you can either choose to pay $110k to settle all the credit cards or $0 and they'll fall off credit in ~12 months anyway?   If so, is there a pressing need for you to buy a home right now vs. waiting?  I understand that not paying them will continue to report late on your credit and hurt your scores, but $110k is a lot of dough to cough up especially for debts that may be past their statute of limitations for creditors to collect on.  Something to think about if you haven't already.

 

I don't believe that settling vs. paying the charge-offs in full would impact your scores any differently.  

 

Paying off installment loans usually hurts your credit scores for a short time.  @Thomas_Thumb probably will have more accurate advice on what the potential impact would be.

 

Personally, I think you should open another credit card or two so you have more revolving accounts reporting each month.  You'll take a hit initially but then your scores should improve at a faster pace than they currently are now.  Mortgage scores love revolving accounts.

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Message 2 of 5
coldworld
Regular Contributor

Re: Mortgage fico score Advise


@jules79 wrote:

I will be applying for a mortgage soon (FHA). My FICO mortgage scores are abysmal (628, 589, and 598). My charge-off CC debts have haunted my FICO score since they are reported each month. These 7 charged-off credit are rolling into the 6th year and obviously will be deleted at their 7-year maturity.

 

(a) In 2 weeks, i am settling ALL of my 7 charged-off credit cards from $110k to $0 balance.

 

(b) I also paid off 3 installment loans today ($8.5k to $0 ), which NOW leaves me with a $14k student loan (monthly payment is $115/mth).

 

(c) 2 personal credit cards reporting @ ($0.00 bal) and 1 AUTH credit card with 1% bal (AZE0).

 

My main questions are:

(1) Since I am ONLY settling (not paying off) those (7) charged-offs, which are 6 years old. How much range would you think my FICO mortgage score will change (increase)?

 

(2) Will the 3 paid-off installment loans help move the needle on the Fico mortgage score?...

 

*Bottom line, i need to have my score up to 680 or more to get a decent rate and hopefully some down-payment/closing costs assistance *


Spending that kind of money to pay off C/Os that are close to aging off seems like a waste of money. You'll get a small benefit of reducing your balances, but you'll still be getting hit for having charge offs. You should just wait...

3B Scores

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Message 3 of 5
VAMortgageGuy
Regular Contributor

Re: Mortgage fico score Advise


@jules79 wrote:

I will be applying for a mortgage soon (FHA). My FICO mortgage scores are abysmal (628, 589, and 598). My charge-off CC debts have haunted my FICO score since they are reported each month. These 7 charged-off credit are rolling into the 6th year and obviously will be deleted at their 7-year maturity.

 

(a) In 2 weeks, i am settling ALL of my 7 charged-off credit cards from $110k to $0 balance.

 

(b) I also paid off 3 installment loans today ($8.5k to $0 ), which NOW leaves me with a $14k student loan (monthly payment is $115/mth).

 

(c) 2 personal credit cards reporting @ ($0.00 bal) and 1 AUTH credit card with 1% bal (AZE0).

 

My main questions are:

(1) Since I am ONLY settling (not paying off) those (7) charged-offs, which are 6 years old. How much range would you think my FICO mortgage score will change (increase)?

 

(2) Will the 3 paid-off installment loans help move the needle on the Fico mortgage score?...

 

*Bottom line, i need to have my score up to 680 or more to get a decent rate and hopefully some down-payment/closing costs assistance *


In my experience, any time I have clients settle their charged off accounts, the scores see a decent improvement. With 110K in balances, I suspect you have a good chance of hitting 660+/-.

 

Settling them VS paying in full does not matter. What does, is the status of the account changes from charged off to paid. I would check the statutes of limitations for your state and for each creditor. Even though the CO accounts will age off your credit report doesn't mean you're out of the woods so to speak. Several states have a SOL of 6 years for open ended accounts which means they can still sue you until you pass that mark. 

The SOL for credit card debt varies by state and can start on different dates depending on the state's laws:

Last payment

In some states, the statute of limitations begins on the date of the most recent payment made on the debt.

Missed payment

In other states, the SOL begins on the date of the first missed payment.

The SOL can also be reset by certain actions, such as making a payment or acknowledging the debt in writing. However, a 2019 Texas law prevents the clock from restarting due to these actions.

I say all of that to say this, settling the accounts not only helps your scores but keeps the accounts from being sold to collection agencies & going to court. 
If you find that your state's SOL is 3 years & the creditor doesn't go by the SOL in their state, you can avoid settling the account & save that money for your down payment and closing costs.

Message 4 of 5
Thomas_Thumb
Senior Contributor

Re: Mortgage fico score Advise

@jules79 

Welcome to the forums.

 

The 3 paid off loans may hurt, not help, your score. Fico looks at aggregate balance to loan ratio (B/L) on open loans. So, if the loans were mostly paid off and your remaining loan has a high B/L, paying off and closing them increases open loan B/L. Depending on before after ratios, there may be no impact on score or a drop. Aggregate B/L below 9% but above $0 can give a nice score boost. Otherwise, just try to keep aggregate B/L under 60%.

 

Paying all charge offs would boost score substantially on Fico 9 and later models. Those scoring algorithms are designed to ignore paid collections and possibly PIF charge offs, Not so for settled charge offs

 

Nonetheless, If the $ amounts of each unpaid charge off is included in aggregate revolving amount owed, then the OPs current utilization is near 100%. Settling those obligations so each balance reports $0 would dramatically drop aggregate utilization. That in itself should bump scores 50 points, possible a bit more.

 

Middle mortgage score should exceed 640. However, the presence of the charge offs on a report still penalizes score like a 150 day late. Unless settlements include pay for deletes they remain on file. If on file, a 680 middle score is not likely.

 

Just being on the report is a 60-70 point penalty.  On the other hand ... If all COs were either removed or aged off, scores should top 700.

 

Interest rates will almost certainly be lower next year, perhaps substantially. Waiting may be your best friend given the situation.

 

3Q2025 mortgage lenders should have converted to Fico 10T. It will be a different scoring ballgame then. Throw in VS 4.0 and who knows.

 

Side note: Try to have one personal revolving CC report a small monthly statement balance (under 9% of the card's CL to avoid the dreaded "no recent revolving activity" penalty. That penalty can be 10-20 points if the AU card does not count. [EX score 2 ignores the AU as an active revolver. So, if only it reports a balance, that score will be penalized]. 

 

If you proceed with the settlements, let us know the outcome.

Good luck!

 

 

Fico 9: .......EQ 850 TU 850 EX 850
Fico 8: .......EQ 850 TU 850 EX 850
Fico 4 .....:. EQ 809 TU 823 EX 830 EX Fico 98: 842
Fico 8 BC:. EQ 892 TU 900 EX 900
Fico 8 AU:. EQ 887 TU 897 EX 899
Fico 4 BC:. EQ 826 TU 858, EX Fico 98 BC: 870
Fico 4 AU:. EQ 831 TU 872, EX Fico 98 AU: 861
VS 3.0:...... EQ 835 TU 835 EX 835
CBIS: ........EQ LN Auto 940 EQ LN Home 870 TU Auto 902 TU Home 950
Message 5 of 5
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