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My Past Credit is Dragging Down My Credit Score. I Want to Buy a House.

“Dear Steve,

I went through a bad health crisis several years ago (2005-2007/2008) at which time I was in and out of hospitals for periods of up to 15-30 days at a time, on disability and struggling to keep all the bills straight and paid, especially all the different Dr. and medical bills that kept rolling in.

Needless to say, during this time my credit went way down hill. I have been working on clearing up my credit for the past couple of years now just because I feel it is the right thing to do.

With the exception of a few bills that remain with an open balance, everything else has been paid or settled, has a balance of $0 and is just now sitting out there aging until such time as they fall off my report completely. I had not planned on having to get a mortgage anytime soon as I have been in the same house for over 10 years and I love my home.

This past summer I was transferred with work out west and it was a phenomenal promotion that I could not turn down. I found renters for my home because the market is so bad, I did not want to sell it and I moved in July.

We are now temporarily renting a house until we find the right area / home in which to buy. We have seen a few homes now and we attempted to get pre-qualified this past weekend with a good mortgage broker out here. I have been working on my credit and monitoring my scores every couple of months – I showed 3 scores of: TU-615, EF – 643 and EXP – 645, so I thought that we would be in good shape.

On top of that, I have a great income, no credit card debt (we pay them off monthly) and a very low credit to income ratio – all of these things should really help us. Not only that, my spouse has almost perfect credit with FICO scores between 760 – 801. I was told that they now only use the mid-score of the lowest creditworthy person, so my Spouses good credit will not help to offset my challenged credit.

When the mortgage broker pulled my credit scores they were MUCH different from mine – TU-570, EF-579, EXP-648…..so he said they have to take the 579 which does not allow us to qualify for a mortgage at all. we are looking to put down 20% on the home and the mortgage broker told me that all of my recent credit looks great.

We really need to buy a home and I need to be able to qualify for the mortgage as I have the higher income of the 2 of us. Many of my paid collection accounts will be falling off over the next 2 years now and I am hoping that will drastically help me.

In the meantime, there are some other things out there that I am trying to determine how much of an effect they have on my current score and what I can do to get my credit up at least 61 points in the near future. Please advise on the below items and let me know if they have a large impact on my score and if I should anticipate a large score bump once they go away or if there are other things I can do to make them go away earlier?

1. I have 3 open medical collections from 2005 – they total $3k and I had disputed with insurance multiple times on these 3 medical collections. All 3 of these will be expiring and falling off my credit report the end of this month. – Should that have a large impact on my score? They are old but they all still have balances on them, so I am thinking they are really dragging me down?

2. I have one late mortgage payment to BB&T that occurred 4 years ago. Other than that, I have a perfect standing on all of my mortgages and that was an oversight with a new online banking bill pay set up. I had called as soon as I realized the mortgage had not paid out of my account and paid it over the phone directly to BB&T. They were very nice and they told me it would not be reported since I had a perfect payment history up until that point. well, it was reported and I have since refinanced that loan with them, so, it has been closed since 2011. That account is showing on my CR as “negative” for that one payment. I am writing to everyone but Santa over there on an Executive level asking for a goodwill adjustment on that one entry. Can you recommend who I should send that letter to? Do you think this is having a substantial impact on my score? Would you think I would see a marked improvement in my score if I was able to get them to remove this a nd report the account as “Paid as agreed”?

3. I have one large unpaid credit card bill that was charged off back in 2006/2007 when I was ill. I owe $4,975.00 on it and it is set to fall off between 5/3013 – 8/2013 depending on which CRA you are referring to. Again, this is old but I would assume it would be really dragging down my score? I am afraid to pay it at this point as I think it could re-age my debt and actually hurt me? Do you think I should just “let sleeping dogs lie” on this and wait for it to fall off in 2013? Do you think that will make a substantial impact on my credit score when it does?

4. I have a secured card that I have paid perfectly, they just doubled my credit limit without my request. I am also a joint account holder with my spouse on another credit card through Wells Fargo and that one has a perfect history, I am an authorized user on several other cards that my spouse has and all of those are perfect, my mortgage has been perfect for 15 years with the exception of the one late payment I referenced above, our utilization rates are low and we pay everything off at the end of every month. What else can I do to improve my scores as quickly as possible? Do you think the above items coming off of the reports will allow for that 61 point improvement that I need?

I will still have several other things that will remain for the next few years but they are all paid with balances of 0 and are just aging out at this point, including 2 judgements that are fully satisfied.

Any information or help you can provide would be greatly greatly appreciated. Thanks so much for your consideration………we really need a home of our own, I have never not owned my own home.

DCS54B”

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The Answer

It sounds like both the medical accounts and the credit card will fall off your credit report soon. In general a negative item is reported for 7 years from the time it was first reported delinquent. The rules save it can be reported for 7.5 years.

I suspect that if your debt to income ratio is good and you have little to no current outstanding debt that the issue that is bringing down your score is actually not enough good and open unsecured credit.

After a credit bump in the road many people avoid taking on new credit and that actually only slows their recovery.

The one secured card you have is a good start but it doesn’t count for anything unless it is regularly reporting to the credit bureaus. Not all secured cards do.

The old accounts dropping off will help a bit but your current credit weighs move heavily on your score.

I’d make sure you have at least three secured or unsecured cards you are the primary or joint account holder on that are reporting to all three credit bureaus.

Make sure you keep your balance on these individual cards lower than 33% of the limit at all times.

I’d also suggest you monitor your credit report and credit score. Some of the online credit score products have very good modeling calculators to show you the impact of changes.

Boosting Your Credit Score With Good Credit Using a Secured Card

Using the report card analogy, if you wanted to bring up your GPA you would need to earn some better grades to do it. It is the same with your credit report. If you want to bring your score up you need to start having new and good credit reported about you.

The best way to do this is to get and use a secured credit card. In fact get two different ones. I put together a section of the site that lists reviews for secured cards. Look at the secured cards here.

The advantage of getting a secured card is that you will get the credit card and not get a rejection on your credit report that will further hurt your credit. A rejection can be easily spotted by looking at the inquiry section of your credit report and seeing there is not a corresponding card opened. And with your current bad credit, if you applied for an unsecured card, you would get rejected.

The reason you will get the secured credit card on the first attempt is because you need to put up a deposit with the bank that is equal to your credit limit. The deposit will earn you interest and in the unfortunate event you were unable to pay your card and defaulted, the bank would use your deposit to pay the debt.

When looking for a secured card you want one that will report to all three credit bureaus. This is key. We need your new good payment history reported.

Now when I say use the card, you do not need to carry a balance from month to month. Just use the card for regular purchases and pay the card off either immediately or at the end of the month.

Also, if you get a secured card with a $300 limit, never have more than 35% of the limit on the card. Even though your initial limits may be low, you don’t want to max them out. You can always increase your limits by increasing your deposits. You can increase your credit limit by increasing your deposit with the card company.

I suggest getting more than one card so you can get as much good juice flowing to your credit report without having too many credit cards open. You could actually go with three if you wanted to, but no more than that.

Just make sure the card will report to the credit bureaus.


Please post your responses and follow-up messages to me on this in the comments section below.

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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