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First time buyer lots of questions!

Me and my husband are wanting to buy a house in the early summer and are trying to get things in order.  Right now are scores are slightly lower then what they should be.  Mine is 567 his is 529.  We have been working on raising our scores.  Is it better to pay down our balances of current loans ( we have two auto loans, two credit cards, two installment accounts *these are all in good standings for the last 2 years*) or our old debt that we let go bad about 3 years ago?  We have CC that went into collection and now we have a few collections on our credit.  Our score has raised alot since we've been re established credit. So I don't want to make it worse by paying old stuff off.  I wasn't sure if anyone knew.

  • November 12 2012 - US
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Answers (1)

Your scores can go down in the short term by paying off debt. Simply because a collection that was last reported 2 years ago can now be updated to paid status and re-reported with the current date. This makes it look like newer collection activity. Once the debt is paid and some time passes that affect on your score will diminish. 

On the older collection you can probably negotiate a very low settlement and get it paid off quickly. Then when it's time to buy, you don't have to worry about these debts getting sold again and being reported as a new collection bringing your scores down once again. If you have some time to work with, I believe it's better to get the debts cleared up.

Keep all your credit card balances well below 50% of the limit set by the card issuer. Don't try to pay off your car loans faster, that won't make any difference. Save up some cash instead.

Let me know if I can help you with pre-qualifying.
  • November 13 2012
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