Hello everyone. I have a couple of questions. First some details about my credit report. I currently have a score of 583 according to freecreditreport.com. I have 4 delinquent accounts which I will be paying off in the next 2 months. Also, my auto and college loans will be paid off next month. I have 2 credit cards close to max but will be paying them off in the next 2 months as well. My 1st question is how significantly will this help my score and also will this put my in a position to get approved for a $90,000 home loan within the next 6 months? Once the loans and delinquents are paid off I really have no debt at all other than rent and utilities. I've had the same job for 12 yrs and make decent money so I have to think that will help. Thanks to all who answer.
First, I wouldn't rely too much on the FAKO score you receive from freecreditreport.com. It's an OK estimate of what your real FICO scores are, but it's not the real thing. As you prepare to actually apply for your home loan, I would recommend pulling your real FICO scores so you know exactly where you stand. Now, another important thing to remember is that paying off delinquent accounts won't necessarily improve your credit scores. A "paid" charge off or collection is still an inherently negative mark on your credit reports, so it's really not any better than unpaid charge offs or collections. That said, potential lenders will certainly look more favorably upon old baddies that are paid off. If you have the funds to settle these old debts, the best case scenario is to negotiate complete removal of them or get them updated to "Paid in Full". Even paying off your auto loan could send your credit scores South a bit, since it can hurt your credit mix. It seems counterintuitive, but it's the truth. Paying down your current credit cards in good standing will definitely have a big positive impact on your scores. There are so many other factors involved that I can't make an exact guess at how much it will improve your scores, but continuing to build positive payment history while reducing your credit utilization ratio will be huge for you. Lastly, remember that it's not just your credit scores that will get you approved for the home loan. Underwriters will look at your entire financial picture, so if you have solid income/employment history and a low debt-to-income ratio they may be willing to approve a loan even if your FICO scores aren't exactly where you want them to be. For the best rates/terms, you'll want your scores to be above 750, and my guess is it would take you longer than 6 months to get there. I could be wrong.
Since you are trying to increase your credit score to qualify for a home loan. You may want to rethink paying off or settling old collections on your credit. Since the collections are negative items when you pay them off you will be refreshing negative items and giving them a new active date. This could lower your credit score instead of increase it. I am not saying don't pay your bills, but for the purpose of qualify for a home loan maybe wait to until your loan closes. If you need more points to qualify you could also have a family member or friend add you as an authorized user to one of your credit cards. This will give you a quick boost in your score. Just remember the card must have perfect payment history and a low balance at all times. Good Luck with your mortgage! Heather with BoostMyScore.NET
