Need to rebuild credit - getting conflicting info

[RayCarman]

Hello! I'm new here. Been reading various threads most of the afternoon and decided to just ask my question here as none of the threads were able to answer all of my questions. Here's the situation - and this is all regarding my fiance's credit. Mine is shot after a divorce years ago (hence why it's currently 'fiance' and not 'husband', my bad credit would likely infect his!).

Okay, my husband is trying to increase his credit and after apparently going about it in all the wrong ways, we're searching for answers on exactly what he needs to do to get his score higher. Currently his FICO scores are Equifax 546, Experian 554 and Transunion 560.

His credit is kind of a mess. In the past 18 months he's gotten two car loans - both are paid ahead of time and more than is due. He's also gotten three credit cards - thinking this would help build credit. Two of the cards are unsecured and one is a secured card through his bank. All three cards are maxed out (largest has a $500 limit) currently but all payments have been made ahead of time and generally more than was due. He also has a small personal loan he took out as well, $1200 borrowed and $600 still due. The only other things on his credit report are 8 old collection accounts (5 are old medical bills) that total $4400.

So, our question: what all should he pay off to get his credit score back up? We've been told all credit cards should be paid off in full and to ignore the old collections. We've also been told to pay all credit cards down to a 20-30% balance and pay off all old collections. We've even heard that setteling with the old collection accounts, versus paying off in full, would look bad but others have said it won't matter. We're confused about how to proceed and are hoping to apply for an FHA loan here soon. We're planning on paying off whatever we need to in the next 30 days or so and doing a rapid rescore through our mortgage company. What is your advice on how we should proceed? If I've left out any information, please let me know.

Thanks!

[rd2rebuilding]

Paying down credit cards to 20-30% will show an increase as it is recommended to keep utilization under 30%, but the quickest and largest bump will come from paying down credit cards to 1-9% (you could pay down 2 cards to a 0 balance and leave about 10% on one). How old are the collections??? Are they out of SOL and/or near CRTP? If so, you could try to negotiate a PFD for them. If they are questionable old debts, you could DV them, and they may get deleted with the inability to validate. All in all, I would try to take care of the debts regardless if they are outside of SOL and about to "fall off" as they would have to be disclosed during certain loan underwritings. If unable to PFD, settle or PIF. If settling, make sure that the tradeline will note being "paid in full" instead of "settled for less." After paid, you can try to goodwill them off. Even if you are stuck with them until the CRTP is up, the "paid" collections will look better under manual review of the credit report. 

[DaBears]

Hi RayCarman and welcome to the forums!!!!! Having maxed out credit cards is a huge score killer. I would pay 2 of the cards in full to 0% and keep the other one between 1-9% UTIL for optimal scoring. What is the SOL in your state? Sending a DV would likely cause them to sue if the unpaid debt is valid. I would offer a PFD first. If that doesn't work I would offer a PIF as settle for less does not look good on a manual review of your credit reports.

Installment loans, car loans, personal loan only account for 10% of your fico score. Having a mixed credit profile is good. Making on-time payments and having no lates reported. 

Community Leader, 

DaBears

[RayCarman]

Thank you for the responses.

After reviewing his credit report, none of the collections are past their SOL as of yet. My understanding is that the medical bills don't have a SOL regardless of which state you're in and the other collections are two cell phone accounts are a few years old but were 'last reported' late last year.

It seems our best bet, and our plan going forward, is to pay off two of the credit cards and keep a 3% to 4% balance or so on the third. Since we do have both, does it matter if the small balance is kept on an unsecured or a secured card? We'll also start contacting the collection account holders and see what we can negotiate - hopefully PFD on each but at least PIF will look better than it does now! And we'll just keep doing what we've been doing with the personal and both auto loans. Hopefully we see a jump in his FICO scores once all the debt is paid off / down.

[DaBears]

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@RayCarman wrote:

Thank you for the responses.

After reviewing his credit report, none of the collections are past their SOL as of yet. My understanding is that the medical bills don't have a SOL regardless of which state you're in and the other collections are two cell phone accounts are a few years old but were 'last reported' late last year.

It seems our best bet, and our plan going forward, is to pay off two of the credit cards and keep a 3% to 4% balance or so on the third. Since we do have both, does it matter if the small balance is kept on an unsecured or a secured card? We'll also start contacting the collection account holders and see what we can negotiate - hopefully PFD on each but at least PIF will look better than it does now! And we'll just keep doing what we've been doing with the personal and both auto loans. Hopefully we see a jump in his FICO scores once all the debt is paid off / down.

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What state do you reside in? Doesn't matter if it's secured or unsecured for small bal. Installment loans only account for 10% of Fico scoring. Keep making your payments on time, no lates aging the cards for atleast 12 months and try to get the PFD's going. You can always send GW letters on the PIF collection accounts asking for deletion. Best of luck!!!

Community Leader, 

DaBears

[RayCarman]

We're in Illinois - southern Illinois, that is...Rams and Cardinals country! LOL

Sounds good - thanks for all the great info. I can't believe how much I've learned in just one day! Wish I would have known this a year ago but better late than never, and all that.

[unusuallyconfused]

I'm going to give my own take on this based upon what I've learned and based on recent experience:

First, it seems like you're trying to get your credit score up quickly because you're trying to get an FHA loan. That sucks because time is not on your side. Honestly, I'd either wait on the loan so as to give you a realistic timeframe to improve your scores/credit OR roll the dice and hope like Hell you get approved.

If you take the "roll the dice" option:

1. No question, the fastest way to raise your scores is to PAY DOWN CREDIT CARD BALANCES. That's simply a question of money. If you're near maxed out on the cards or maxed out, that is a huge score killer (the FICO score formula gives 30% of their score to "credit utilization"). So if you're maxed out on the cards, pay them down as far as you can go. You'll see a score bump WHEN THE NEW BALANCES report (simply paying them will not give you a score increase until they report - keep that in mind, you can't rush when the new balances will report so keep that time frame in mind!!!). On time payments account for 35% of a FICO score. So a total of 65% of your FICO score is on time payments AND credit utilization.

2. Your "baddies". Frankly, I don't see how anybody would approve any type of loan with unpaid collections (but maybe I'm wrong on that). Some may tell you that scoring wise, it doesn't matter if a collection is paid or unpaid, but IT WILL MATTER when your credit is MANUALLY reviewed. Which, for an FHA loan, it will be. Pay off your debts that are reporting AND learn what you can about techniques that will assist you in your situation in either removing the baddies from your credit files OR minimizing their effect on your credit score.

And remember, credit scores don't mean anything. Just because a person has a certain credit score doesn't mean they are going to be "approved". There's the credit score and then there's what's in your credit file. A person can easily have a FICO score of 778 with two closed, positive, credit accounts and no open accounts BUT STILL BE DENIED credit even if their score is high. Don't get hung up on the score because in your case the score is only important in this case: FHA loans require a minimum score to be processed/considered. AFter that, your credit file will be reviewed manually and if it shows you can't manage credit then you'll be denied regardless of your score.

In short, I'd really do my homework if I were you and tailor your actions to your immediate goals. But then again, I'd seriously wait on the FHA loan so that you guys can have the time to get your credit situation straight.

And by the way: your bad credit would NOT affect your fiance should you get married. That's a myth. When you're married to somebody, you can willingly MERGE your credit files and that's where both your situation and his would affect each other. But if you don't do that on your own, then your credit files (and scores) and his credit files remain separate.

Either way best of luck and get as much facts and information as you can. If you want to fix your credit, it can't be a part-time job - you've got to make it THE PRIORITY in your life for the short time it would take to get it fixed. 

[RayCarman]

Thanks for all the info.

We paid down all three of his credit cards this morning - two were paid down to a zero balance and the third has a 4% balance now. As for his "baddies", those will be taken care of over the next few weeks - hopefully with PFDs but at least PIFs will be better. And all current accounts are paid early every month.

We're very interested to see what effect all those things have on his score.