Credit Recovery Journey and PenFed rocks!

[shipo]

I am now one year and one week post-discharge from my Chapter 13, or, said another way, 53 weeks into my credit rebuild journey. Over the last year I've done some things well, and made some careless mistakes, but I'm making significant progress; so here's an update:

Mistakes:

• Applying for credit too soon after my discharge; as a result I racked up two "Hard Pulls" against my credit report, both of which resulted in denials.
• Assuming all "Secured Credit Cards" were created equal instead of doing a deep dive into that category of credit. The result was opening a CapitalOne Secured card with a limit of $1,000; totally insufficient for my normal monthly spend. I ended up closing that card after only six weeks; this in turn yielded yet another wasted "Hard Pull" against my credit and then a cut in my scores after I closed the account.
• Assuming a Discover Card "Pre-Approval" letter received in the mail would translate to an approval. Bzzzzt! I'm sorry, that is incorrect; I applied and got a fourth worthless Hard Pull against my reports.

Successes:

• After becoming disenchanted with the CapitalOne secured card, I did my research and opted to open a secured card from TDBank with a useable credit limit. Six months after I opened the TDCash card it was unsecured by having the lock removed from my security savings account; the credit limit on that card is now $5,000.
• Six months after closing my CapitalOne secured card, CapitalOne contacted me and tempted me to come back by offering me an unsecured Quicksilver card with a $3,000 limit; yeah, I took the bait.
• My research indicates the best way to build credit scores is to obtain and maintain three major credit cards and have at least one personal loan (preferably two). After numerous "See if you're pre-approved" attempts with Discover Card's web page, and getting denied every time, I moved on to PenFed.
  • Based upon advice from justbroke, I opened a simple savings account with PenFed and funded it with an eye to obtaining a Share Loan (basically a secured Credit Builder Loan); their underwriting rules require the money to be in the account for a minimum of 30 days before they'll initiate the loan.
  • Yesterday I took a whack at applying for a PenFed Platinum Rewards Visa Signature® Card and was instantly approved with a starting limit of $6,000 (take that Discover!).

Next steps:

• Once the 30 day window passes I'll open the PenFed Share Loan and then sit tight until April 2022; by then my credit should, in theory at least take several bumps from the steps I've taken as well as the passing of the 7 year window for my Chapter 13 filing.
• After all of my steps over the last year, both good and bad, my Vantage 3 scores range from 690 to 705 and my FICO 8 Experian score (the only FICO 8 I have access to) is sitting at 653. With any luck, and if I can avoid "rebucketing", my scores will be in the mid-700s this time next year.
• Then in April 2022 my wife and I plan on applying for a mortgage and buying a new home.

Final thought:

• Credit recovery is a marathon, not a sprint; I tried to sprint last year right after my discharge and got slapped down for my efforts; don't let that happen to you.

[justbroke]

PenFed is not as generous with credit lines as Navy Federal, but that initial credit line that you received is phenomenal. Since Vantage weighs your credit utilization heavily, you are in good shape. I'd probably guess that your Equifax and TransUnion scores are over 690 or maybe creeped just into the 700s.

There is life after bankruptcy!

[flashoflight]

If the ultimate goal is a mortgage, you should be focusing on your FICO 2/4/5 scores and only utilize strategies that will help with the mortgage scores such as AZEO. Watch out for the hard inquiries as you get closer to application date. HP less than 6 months from application will hurt you. A lower middle score will negatively affect how expensive the mortgage is, so I'd laser focus on 2/4/5 and forget about the others.

[shipo]

Agreed, at this point the only remaining item on my checklist is to open the Share Loan at PenFed once my deposit money ages 30 days. At this point I'm done applying for anything credit wise and am planning on sitting tight until April of 2022 when all 7 of my hard-pulls have aged out to at least 13-months, my Chapter 13 Discharge has aged out to 7-years plus 2-months, and my oldest new account will have aged out to at least 12-months.

As things stand today, I have three "rewards" credit cards, one each from CapitolOne, TDBank, and PenFed, I'll also have the Share Loan opened the second week of April and will pay it down to under 9%. As for AZEO, I categorically refuse to play that game; I use all of my cards to maximize their rewards, I pay them in full, before the due date each month so by the statement date a few days later there are just a few incidental charges typically amounting to a percent or two of that card's limit. I know lots of folks preach AZEO, but I fail to see how any underwriter worth his or her salt would give a tinker's damn whether my three credit card balances were, $0.00, $0.00, and $120.00 versus, $12.50, $27.39, and $83.91; and if an underwriter has a problem with that, there are plenty of mortgage providers out there to choose from, I'll just move on.

[justbroke]

shipo I think that we should probably revolve < 7% on every revolver, because banks are known to reduce or close credit lines that are not in use! I had a $17K Care Credit line that was not in use for 18 months and they closed it. I didn't want to ever use it, but had it for padding. Oh well.

[shipo]

shipo I think that we should probably revolve < 7% on every revolver, because banks are known to reduce or close credit lines that are not in use! I had a $17K Care Credit line that was not in use for 18 months and they closed it. I didn't want to ever use it, but had it for padding. Oh well.

Hmmm, it isn't as if I don't charge upwards of 50-70% of my limit per month, it's just that I pay in full immediately prior to each due date. I've seen on my credit reports they show things like monthly balances of typically less than $100, as well as my monthly payments of a few thousand dollars. I seriously doubt a bank will close or reduce my credit line with that kind of usage.

[justbroke]

Not for how you are using the card(s) shipo . I was more concerned about AZEO and leaving some accounts vulnerable to closure or a credit line reduction.

[shipo]

Not for how you are using the card(s) shipo . I was more concerned about AZEO and leaving some accounts vulnerable to closure or a credit line reduction.

Got it. I know a lot of folks are absolutely wedded to the AZEO thing, but I think that's doing a disservice to the uninitiated as jumping through hoops to either cram everything onto a single card, or watching your account online like a hawk and then paying as soon as a charge clears is way over the top.

Clearly those who worship at the altar of AZEO think my comments are heresy, but every time I ask for some level of proof, the response comes up crickets; they swear by it because that is what they were told to do, and never questioned.

[justbroke]

I think AZEO works for immediate results where the person is seeking additional credit (mortgage, etc). I don't know if it works over a long period of time before suffering from CLDs (credit line decreases) and account closure due to lack of activity. A lot of people, including myself, learned that during the pandemic, major banks went after "unused' lines of credit. I had a $10,000 line with Amazon and they closed it in June due to me not using or "needing" the line of credit.

[shipo]

So, I just did a pushback against an AZEO devotee on a different forum and got an interesting wrinkle in a response from "another AZEO skeptic"; there is apparently another acronym called AZE2 which is short hand for super low reported balances on multiple credit cards, say all under 1%. If I understood his or her response correctly, there is absolutely no difference in scores for folks strictly adhering to AZEO versus AZE2. To me at least, that is common sense; it will be interesting to read the howls of protest from the folks who swear by AZEO.

[justbroke]

I like AZE2. According to my current FICO score, high achievers have balances on no more than 3 accounts and have balances less than 7%. High achievers are likely those over 800. There's a guy at work that was buying a new house and, during a meeting, told us that his middle score was 845. I guess someone could actually reach 850!

[flashoflight]

Here is my take on AZEO.

You are not earning interest beyond pennies on the grace period. So you should pay it all off before statement cut date except for the AZEO balance. Before the statement cut date, do whatever you want and can afford. AZEO doesn't prevent you from earning all of the rewards. With the other dormant cards, go buy something and schedule a bill pay a few days later for the same amount once a year to prevent the card from being closed. I can schedule the billpay in the store's parking lot.

I do believe that using cards promotes overspending well beyond the rewards. Certainly there is no problem with recurring expenses like utilities on a card and yeah take the rewards when there isn't a cash discount. But stores can be an issue. The best example of impulse buying is Costco. There is no store map. There is some inconsistency with respect to what's stocked in the store and it becomes a treasure hunt experience with rotating stock that leads to impulse buying. The laptop that's there today probably won't be there 3 months from now and it might be more expensive elsewhere. But that's not a good reason to buy.

If you're applying for a mortgage, the 2/4/5 scores are going to make a difference on how much you pay. So it's a real good idea to focus on getting every last point on those scores even if you have to keep your rewards card dormant around the statement cut date. The underwriter can't do anything about the scores being down due to statement balance. Just play along, play AZEO, get the mortgage, and then do whatever you want once the escrow is closed.