Best Course Of Action?

[trdmlc]

I would like to apply for a mortgage in roughly 6-8 months, once I have saved enough for a DP and my credit score is safely into the mid 600's.

I currently have:

3 closed credit cards which are nearly PIF. 

1 year old auto loan at a high interest rate (22%)

$1000 loan with American General that will likely be PIF in about 3 months.

$70K in Student Loans, deferred until next spring.

AAoA is currently about 7 years, with my student loans making up the majority of that.

What I would like to do:

I would like to refi the auto-loan to get a lower rate.

Since CC's are closed, I don't have enough tradelines for a mortgage, so I would like to open a new CC.

My concerns:

Will a new CC now hurt my chances at a mortgage approval?

Would refi on the Auto Loan hurt my chance at a mortgage approval?

I fear the impact of any of these actions on my score.

Should I just not do anything and hope that once app time rolls around, a LO will consider alternate tradelines (rent, utils, etc)? 

With my income, I'm not too concerned with my DTI, so I could wait on the refi, but it would be nice to have a lower payment.

I would appreciate anybody's input. 

[Anonymous]

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@trdmlc wrote:

I would like to apply for a mortgage in roughly 6-8 months, once I have saved enough for a DP and my credit score is safely into the mid 600's.

I currently have:

3 closed credit cards which are nearly PIF. 

1 year old auto loan at a high interest rate (22%)

$1000 loan with American General that will likely be PIF in about 3 months.

$70K in Student Loans, deferred until next spring.

AAoA is currently about 7 years, with my student loans making up the majority of that.

What I would like to do:

I would like to refi the auto-loan to get a lower rate.

Since CC's are closed, I don't have enough tradelines for a mortgage, so I would like to open a new CC.

My concerns:

Will a new CC now hurt my chances at a mortgage approval?  No.  You want positive open revolving accounts on your CR - it will help you obtain a mortgage.  FICO wants you to have at least one bank/national CC.  Your FICO score will go up when you have an open one.  DH and I both opened several CC's including several within less than a month of refinancing.  (We were planning on doing the refi about a year down the road).  They all showed up on our CR - it was not an issue for our loan officer.  If you are rebuilding, your FICO score does not take as big of a hit for opening new accounts as it would if you had a large established CR.

Would refi on the Auto Loan hurt my chance at a mortgage approval?  It only makes sense to refi that astronomical interest rate.  I would make that move asap.

I fear the impact of any of these actions on my score.  Should I just not do anything and hope that once app time rolls around, a LO will consider alternate tradelines (rent, utils, etc)?  No, you don't have to not do anything.  You can improve your credit score now, and decrease your monthly scheduled payments.  IMO, Both items will be helpful in your mortgage app.  Rent and utilities do not show up on your credit report - you will benefit from taking some appropriate rebuilding actions.

With my income, I'm not too concerned with my DTI, so I could wait on the refi, but it would be nice to have a lower payment.  Your FICO will be fine - refinancing when you're at that high of an interest rate is absolutely the best move.  Don't avoid making common sense financial decisions out of FICO-fear.

I would appreciate anybody's input. 

Hi trdmic,

Are you pulling your scores here?  When you pull your FICO scores, you will also have access to a simulator, which will help you determine how different actions may affect your score.  If, instead, you pull your scores at myfico.com/12 you will always see the same four reason codes which your lenders will see - that will help you determine what is holding your score down.  In your case, for example, you will be getting hit for not having an open bank/national cc card - that would be my first step.

Hope that helps - this is a great place to get good info on rebuilding - glad you're here!!

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[trdmlc]

Thanks for all of the good information.  I will speak with my CU this week about opening a secured card.  Then I'll look at refi options for the car.

I really appreciate it!!!

[Anonymous]

Best wishes!  Just remember that CU cards don't qualify as bank/national cc - FICO will still be looking for one of these!