Topic: Best ways to improve score (if possible)

[Derrick95]

I've been reading through the threads.  Thanks for all the info here.  Apologies if this type of question has already been answered.  Here's my issue:

My credit score is bad, ie ~520.  I had about $10k in debt, all taken on between '01-'04.  As of this month I will have paid off $4k of it (the portion that was nondischargeable student loan debt).  The remaining debt ($6k) is charged off credit card debt that is now uncollectable (statute of limitations over 6 years, they never sued... go figure).

I want to apply for a mortgage in 6 months for purchase of a condo (not more than $90k).  I could put $20k down (or slightly more, if need be).  I am in the military and could be eligible for a VA loan (although I gather the benefits of VA loans are offset somewhat by the bureaucratic requirements).

My question is this: is it possible to repair a credit score from such a low starting point in a period of 6 months?  Outside of getting a few secured credit cards, what else could I do?  Will putting 20% down make getting a mortgage easier?

All feedback is welcome, even negative.

[kevinmanheim]

What is on your credit report that is dragging down the score? How many negative accounts?

Are any of them collection accounts?

Did anyone ever sue you for the debt? i.e. are there any public recirds on your credit report?

Has anyone contacted you recently about the debts?

If I were you, whatever I did, I would not pay anyone a dime to settle these debts. Doing so could reset the SOL. Then, you would be in a real mess.

Realize that as soon as you apply for a mortage, collection agencies will be notified about it, and they will do their best to mess up your credit so you cannot get a mortgage until you pay them ransom.

[Derrick95]

There are 12 negative accounts, but a lot of them seem to be duplicates (most are collections).  Four seem to be linked to the student loan that I just paid off (I'm guessing it'll take at least a month for those to be reported as paid, and I'll have to bug the secondary collection agencies to take it off once I get the paid in full notice from Sallie Mae).  There are no public records and I haven't been sued for any of them.

One I'll consider paying ($350 charged off from T-Mobile to a collections agency  -- I moved overseas and didn't cancel the cell phone line, just dumb and immature behavior).

But that still leaves three accounts, all credit cards, each ~$2k.  All are outside the SOL (each is around 6-7 years old) and I would never speak to a CA or make a payment unless I had to.

I guess my question is this: would any lender give a mortgage to someone who had multiple charge-offs like this?  Will paying off two of the accounts improve my score or would the difference be marginal?  Would putting 30% down on a property mitigate a decision?  50%?

[silverzgirl]

Paying off charge offs does not increase your score. The creditors will tell you it does, but it does nothing but reset SOL and possibly give them more time on your credit report.

Can't help you about the mortgage thing; the only credit I have applied for was Electric Orange checking and it was shot down with 5 charged off accounts. 

I have heard that they will come after you for money though once you apply for a mortgage, and I have also heard that you can't get a mortgage without paying them off. Whether it is true, I have no idea.

[Rottweiler]

I have heard that they will come after you for money though once you apply for a mortgage, and I have also heard that you can't get a mortgage without paying them off. Whether it is true, I have no idea.

Unfortunately, that "urban legend" likely is no urban legend; it appears to be the truth. 

Why? Simple, really: Mortgage lenders are quite risk adverse (when it does not profit THEM to not be so, that is).  They don't want to risk having THEIR collateral loaded up with potential judgment liens filed by third-parties.  This is not only out of consideration of the potential borrower (who would then have an effectively unsalable property as long as the lien(s) remain unpaid) but might make it difficult for the lender should they need to foreclose at a later date ( for the same reason, really, even if some details would change).

[Rottweiler]

There are 12 negative accounts, but a lot of them seem to be duplicates (most are collections).  Four seem to be linked to the student loan that I just paid off (I'm guessing it'll take at least a month for those to be reported as paid, and I'll have to bug the secondary collection agencies to take it off once I get the paid in full notice from Sallie Mae).  There are no public records and I haven't been sued for any of them.

One I'll consider paying ($350 charged off from T-Mobile to a collections agency  -- I moved overseas and didn't cancel the cell phone line, just dumb and immature behavior).

But that still leaves three accounts, all credit cards, each ~$2k.  All are outside the SOL (each is around 6-7 years old) and I would never speak to a CA or make a payment unless I had to.

I guess my question is this: would any lender give a mortgage to someone who had multiple charge-offs like this?  Will paying off two of the accounts improve my score or would the difference be marginal?  Would putting 30% down on a property mitigate a decision?  50%?

This is just my opinion but I would not apply for the mortgage just yet.  Even though offering a much bigger down payment than standard probably will improve your chances of getting a mortgage, the number of negative trade lines--as old as they are--are not good.  If you get a mortgage with them on the credit report, it likely would be for far worse terms than if they were not there despite the big down payment.

Better you do some "housecleaning" of the CRA dispute variety first:

1.) Dispute the multiple collection accounts:  The only time a third-party collector has the right to have a trade line at all is when they actually are servicing the account (or own it). If the CA no longer is servicing the account (or has sold it if they bought it)?  That trade line must go away because they no longer have permissible purpose to have it.

That would include the four tied to Sallie Mae:  The only one that MIGHT have a continued right to report would be the CA you paid to settle the student loan debt; you can attack that one once Sallie Mae has sent you the proof the debt is paid in full.  Go after the others now on the basis they no longer have the right to report since they are neither the OC nor are servicing the account at the present time.

2.) Also go after those credit card accounts, both with the OC and any residual 3rd. party collectors whose TLs are very old.  It's very likely ALL the trade lines--including the OCs'-- are "obsolete"; dispute them that way.  (I am assuming the SOL you are referring to is that which pertains to the courts--the limitations period has run for lawsuit--although if this is the case, the reporting period likely ran out before the SOL did!)

[ZachPA]

I'm gonna bump this one up to tell everyone that I was able to refinance my mortgage while refusing to pay off collections on my credit reports. I refinanced into an FHA mortgage, too!

I have four unpaid medical collections on my credit report totaling almost $5000. They have been there since January, 2006. I also had one collection from November, 2009 for a $350 AT&T bill that I disputed. My scores at the time were all in the 660s.

I went through the entire refinance process from start to almost finish, and that's when the mortgage underwriter sprung on me the need to pay off the collections, either from the proceeds of the refinance, or on my own prior to closing.

I steadfastly refused. I submitted as the basis of my refusal the reason I declined to pay the AT&T collection and the steps I planned to take regarding that collection (I just sued the JDB this past week for TCPA violations), and the fact that the medical collections from 2006 were all time-barred from court action. I told the underwriter that I would rather not refinance if it meant paying those collections.

They bought it, and apparently the FHA did, too, because they had to approve the variance, according to the underwriter.

Here is what I believe worked in my favor:

1. I did not need to refinance my mortgage, and I let them know that. I said specifically, "I will walk away from this refinance before I pay them." My previous was 5.75% and my new was 4.75%. Over the three years it would take to get the collections to fall off my reports, my interest savings would have been $4000. With collections totalling $5000, and closing costs in the $3000 range, there was no impetus for me to refinance, and they knew it.

2. The medical collections were over four years old and past the SOL in my state. Based on last activity dates, the underwriter knew that there was no way the CA could file suit, obtain a lien, and force the lender's hand.

3. The other collection, an AT&T collection in dispute, was for $350. Apparently that wasn't large enough for the underwriter to worry. I suppose if push came to shove there and I were sued by a CA or JDB on that collection, the lender would just pony up the few dollars to make sure they retain the senior lien position. I've seen that done before.

4. There were three months between my initial hard pull and my closing. In that time, no new CAs or OCs came forward with TLs in collections or negatives. (There were none, anyway. Everything had been paid on time since 2006.)

5. My debt-to-income ratio was excellent, as I was borrowing much less than I could afford to borrow.

6. My loan-to-value ratio was under the limitations for FHA enough that I did not hit it even though I financed my closing costs.

So, it's possible. And apparently it's possible even with a government-backed loan. And apparently it's possible in this credit market where every underwriter wants every tiny last piece of information, including what you ate for dinner each day during the past year.