@jdm12 wrote:Hello, I am in some desperate need of help on my FICO 5 4 2 scores. I'm being kicked out of my rental in just under 3 months at this point. June 30th will be my last day, and my wife and I have decided that we no longer want to rent again and go through this rigamarole yet again after many years of renting and thinking that this current place would've been our last place before owning a home.
Anyways, here is my situation:
- Not quite AZEO - If I have a charged off credit card, then this mean I am not technically doing AZEO, right?
- Right.
- While all my active credit cards are paid down to $0, and I carry a $10 balance on the other, I think this means I'm not AZEO because I have 3 credit cards that are charged off.
- Right.
- For my active CCs, I have a limit of $2200, $2000, $1200, $800, and $500 for each respective card.
- Charge offs - I have one personal loan that was charged off and 5 credit cards that were charged off. Two of these credit cards were paid in full. I have 3 remaining charged off credit cards. Balance on those are $38.5k, $7.7k and $6.8k. The personal loan charge off was around $2k.
- Installment loans - I have a personal loan with a balance of $18.4k and an auto loan of $28k. Also have student loans as well
- Mortgages - I do have one mortgage back from when I had good credit (long story). This home is being rented out and I will be selling this home to purchase the next one
- Collections - I have removed all collections. The last collection will be removed in the next credit report update. They are removed because I got confirmed by the collection agency that'll do pay for delete.
- Late payments - So far was able to only get 1 late payment removed from a goodwill campaign. I have quite a few remaining, 10 late payments according to myFICO. I actually see more than 10 late payments by reviewing my credit report so I'm not sure exactly how the myFICO dashboard is reporting that number.
Unfortuantely, my middle FICO 5 4 2 score is still only 573. It was 577 until it dropped to 571 once the balance on my personal loan increased (it's a OneMain Financial loan that's paid ahead so I didn't get a late payment by 'skipping' a payment but the balance did increase from doing that. It seemed that decreased my credit score by 6 points from 577 to 571. Then I did get a single late payment removed, but that only increased my score from 571 to 573. Yikes)
My mortgage officer told me a quick way to increase my score is to pay down my OneMain Financial personal loan from roughly $18k to $13.5k.
I would like to know the basis for that statement. I seriously doubt that it's true.
I was also planning on resolving the charge off credit cards. Which one would help me more to raise my FICO 5 4 2 scores?
Obviously the biggest one would be the best to resolve, but it's also the hardest. I don't know that you can get significant improvement with any chargeoffs remaining. Try to negotiate pay for deletes if you can.
Is there anything else that I can do? It seems that after getting my collections removed, it is really just between paying down existing loans and/or resolving the charge offs.
Resolving the chargeoffs is a thousand times more important than paying down existing loans. The mortgage scores don't really care that much about your installment loan utilization numbers.
Of course I still can submit GW letters to remove late payments and charge offs from my account but that is a long short.
Lates maybe. Chargeoffs, not so easy.
It seems realistically then the best thing that I can do is either pay down the OneMain loan and/or resolve the charge offs, but I wanted to check with you guys if this is a good plan??
Forget about paying down the loan; that is the least of your issues.
Also would paying down the personal loan from $18k to $13.5k do more to help the credit, or would resolving the charge offs do more?
Resolving the chargeoffs.
Such as if I was able to take care of the $38k charged off credit card. Also, I heard some lenders won't work with you if you have any charge offs, is that right?
Yes.
I thought that would apply to only collections but I guess that's different now? Thanks a lot guys!!!
@jdm12 wrote:Thanks guys for your responses. Also, just to confirm, I am actually going for a non QM loan. My credit score is realistically not going to be quite high enough to go for a Jumbo loan in the short term, so I am going with non QM. I can't do a FHA or conventional loan because the loan amount that I need exceeds the limits of those in my area. I didn't mention that earlier, but thought to mention it since I was asked.
Also regarding what was the basis for the mortgage officer saying to pay down the personal loan - He didn't really have a basis. He just emailed me that and went by according to the software he used from creditxpert.com, apparently it is some paid service that some mortgage companies purchase to help people understand what score they'll get based on what they do. It's paid so I'm under the impression that it's got to be better than the wild estimates given by the free estimator tools that we've come to expect to be unreliable. But still, I wasn't really sure if paying down the personal loan would really do that since that advice given to me goes against what I've seen in these forums is that paying down an installment loan does not quite do that much for you (though I have seen in other instances paying it down to be under 8.9% for an installment loan - just like a credit card - also helps)
It won't help your FICO scores.
It might lower your debt-to-income ratio, which I am told is a big factor in mortgage lending.
@JoeRockhead wrote:
@jdm12 wrote:It wouldn't help with debt to income ratio to pay down an installment loan unless it is completely paid off. If you have say paid it down from $18k to $5k, your monthly installment payment is still the same. It won't help on the DTI calculations. I guess you're saying the mortgage officer, the software his company pays for is wrong? Anyways, I do recall seeing on this forum that paying down installment loans to under 8.9% helps. Is that not true? I'm honestly not sure what to believe since a lot of people say a lot of different things
The only time you get a big score boost from paying a loan down under 9% would be if it was your only open loan... otherwise the gains are minimal... I tend to agree with the advice from @SouthJamaica , given the type of mortgage you're looking at. Maybe your LO was just plugging in different scenarios to see what the program gave as the best results... sort of like throwing darts... I'd be interested to see what @ShanetheMortgageMan has to say based on his experiences in the industry.
That score boost only occurs in the FICO 8's and 9's, not in FICO 5, 4, and 2.
From my experience - speaking purely from a score perspective, settling or paying off all the COs will have a significant impact to your mortgage scores. The kicker is that you won't see the jump until they all show $0 balance past due. Until you do that, you will only get minimal score movement by lowering your utlization on your other in good standing accounts. The COs are essentially maxxed out accounts killing your overall utilization and the old algos hate that. Additionally, if the COs report every month it's suppressing the scores even more. When I went through this, my old COs were being updated every month.
You don't have to pay off the COs, you just need to settle them. Most creditors will take a settlement offer on COs, especially as they age.
@TheKid2 wrote:From my experience - speaking purely from a score perspective, settling or paying off all the COs will have a significant impact to your mortgage scores. The kicker is that you won't see the jump until they all show $0 balance past due. Until you do that, you will only get minimal score movement by lowering your utlization on your other in good standing accounts. The COs are essentially maxxed out accounts killing your overall utilization and the old algos hate that. Additionally, if the COs report every month it's suppressing the scores even more. When I went through this, my old COs were being updated every month.
You don't have to pay off the COs, you just need to settle them. Most creditors will take a settlement offer on COs, especially as they age.
Great information to have.