As most of you know, I have been through a crazy few years - a drawn out divorce, over my head debt, etc. BUT I survived and actually thrived. When we rang in 2012, I decided it was time to think about buying a house of my own. I knew that my credit was still "iffy" but thought I'd go forward so I would know what I needed to work on. Imagine my surprise when I found out that despite taking responsibility for my debts and doing the right thing, the system worked against me. I'm not posting this for sympathy or as a whiny screed - I think it's important to know how the credit reporting system and mortgage system are set up to work against those that try to pull themselves up by their bootstraps.
When I found myself in a financial crumch even before TheColdOne decided he didn't want to be married anymore, I chose to join a debt management program rather than file bankruptcy. This was quite a stretch as my debts were around $40,000. I began making the monthly payments to get myself out of my self-made financial hole. Unfortunately, I didn't learn my lesson and ran up a couple more credit cards. I had just enrolled those maxed out cards into a debt management program when I was hit with the divorce.
I chose once again, to pay off my debts. After all, I ran them up and it was my responsibility. The divorce dragged out over 3 years and my company put pay raises on hold & eliminated yearly bonuses. I was struggling just to pay the essentials. I kept up payments on the oldest debt management program but dropped out of the newest one. I contacted all of the credit card companies involved and explained the situation. I started making at least token payments each month - less than the minimum due - in order to show that I was making an effort. Once I received the divorce settlement, I paid all the past due amounts and brought the cards up to current status. I completed the initial $40,000 program - not missing a payment for over 9 years - and paid in full.
So this is how I entered into the world of credit reports with less than $6000 in credit card debt, a couple of parent college loans and a car loan. I actually had a little bit in savings - enough to cover the closing costs of a mortgage. I met with a mortgage lender, explained my situation and we proceeded to see where I stood. My credit score was still less than the minimum required but only by 30 points. Just a few tweaks would bring me up to snuff. I set out to contact the credit card companies and see what could be done. Needless to say, I was met with indignation and actual disdain. Some even expressed shock that I would even think of asking them to work with me.
Here's a few key points that I learned. First of all, if you are unable to make the minimum payments on your credit cards, it does NO GOOD to make at least a token payment and contact the credit card company. If you pay less than the minimum, it goes as a delinquent account on your credit report. Delinquent payments stay on your credit report for 7 YEARS. If you file bankruptcy, it stays on your credit report for 10 years BUT FHA allows you to obtain a mortgage after 2 years of filing bankruptcy. There is no relief for those with delinquent payments or for those that struggled to make token payments. This has a HUGE impact on your credit score.
Secondly, it doesn't matter if your credit card payment is posted 1 day late. It automatically goes to the delinquent payment of 30days bucket. I literally had a payment posted on the 6th when the minimum payment was due on the 5th. It now shows as a 30day delinquent payment on the credit report. This also has a huge impact on your credit score. The credit card companies were actually offended that I requested this be changed on my account - "you should have made your payment on time". Forget the fact that I made a payment that was higher than the minimum amount due. Didn't matter.
Lastly - if your account goes to collection but your payment was already in the mail and posted less than 2 days after it went to collection, too bad. Even if you spoke to the credit card company many times BEFORE it went into collection and they knew of your situation. Even if your payment was to pay the account in full.
So essentially, I did what I felt was right. I took responsibility for my debt and slowly paid them off. I have no active credit cards (and yes that has a negative impact on your credit score - you have to show that you have available credit) and less than $6000 in credit card debt. I have paid all rent, utilities, car payments, student loan payments, etc on time. The only place I struggled was the credit cards - yet I am not able to get a mortgage. I am a nurse and make a comfortable salary - have worked in this same position for 10 years - yet that doesn't make a difference.
When I hear the news reports about how the government is working to help those behind in their mortgages and those that took out mortgages they couldn't truly afford, my blood starts to boil. I'm not denigrating all of those that are in financial hot water - most of it through no fault of their own. Believe it or not, I could have filed bankruptcy 3 years ago and be better off now. I would have saved all the money that I paid to the credit cards, been credit card debt free and began to rebuild my credit. I wouldn't have struggled and scaped by and the stress would have been reduced tremendously. I could actually qualify for a FHA loan since the required 2 years after bankruptcy would have passed.
I just find it astonishing that if you are able to dig yourself out of the hole & work very hard to do so, you are punished. This doesn't bode well for the future of the people that struggle through these economic times and want to grab their piece of the American dream. It is strictly a numbers game and the math doesn't add up for those ready to take the next step into homeownership.