Qualifying For Mortgage With Bad Credit And Late Payments

5 Factors That Affect Credit Scores For Mortgage Borrowers

BySapna Sharma
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This BLOG On 5 Factors That Affect Credit Scores For Mortgage Borrowers Was PUBLISHED On June 30th, 2019

Credit scores are probably the second most important factors that affect credit scores when qualifying for a residential mortgage loan. Credit scores also play an impact on mortgage rates. The higher the credit scores, the lower the rates.

  • The first most important factors that affect credit scores is income
  • You can have the best credit scores in the world but without documented income, you are dead under water
  • No lender in this planet will give you a mortgage loan approval without documented income
  • This holds true even with 850 credit scores after the 2008 real estate and mortgage collapse and the total overhaul of the mortgage industry

In this blog, we will discuss 5 Factors That Affect Credit Scores For Mortgage Borrowers.

Credit Scores Determine Mortgage Qualification And Interest Rates

However, credit, credit history, payment history, and credit scores are extremely important and it is your credit scores that will determine whether or not you qualify for a mortgage now or whether you need to wait until you boost your credit scores.

  • Mortgage loan programs have minimum credit score requirements
  • For example, if you want to qualify for a 3.5% down payment home purchase FHA loan, you would need a minimum of a 580 credit score
  • If your credit scores fall between 500 and 579 FICO, you would need a 10% down payment under HUD’s lending guidelines
  • HUD is the parent of the Federal Housing Administration, commonly referred to as FHA
  • Fannie Mae and Freddie Mac are the two mortgage giants that set conventional mortgage guidelines
  • The minimum credit scores you need to qualify for a conventional loan is 620 FICO

Minimum credit scores for Jumbo mortgages are normally 700 FICO.  There are 5 factors that impact credit scores

Payment History Is Most Important Factors That Affect Credit Scores

Your payment history has a 35% impact on your credit scores.

  • Paying your monthly debt on time has the largest benefit and major impact on your overall credit scores
  • One late payment on one of your credit history can plummet your credit scores by more than 50 points
  • Judgments and charge off as well as collection accounts can have long term negative impacts on your credit scores
  • Also, being late on a high minimum payment will have a greater negative impact on your credit scores than being late on a low minimum payment
  • The good news is that the older a late payment is, the less of an impact it will have on the person’s credit scores

A late payment that has aged over 2 years will have less of an impact than a late payment that is two months old.

Outstanding Credit Balances Of 10% Or Under Will Have Positive Impact On Credit Scores

To maximize your credit scores, your outstanding balance should be at least at 20% or less than the total available credit limit.

  • For example, if your credit limit on your Capital One Credit Card is $1,000, you should have no more than a $100 balance on your credit card balance to have the highest available credit score
  • If possible, you should have a lower credit balance
  • Your outstanding credit balance has a 30% impact on your credit scores

Credit History Has 15% Impact On Credit Scores

Your credit history has a 15% impact on your credit scores.

  • Your credit scores consist of the total length of time you have had an individual credit card or credit tradeline
  • The longer you have had a credit trade line, the stronger borrower a creditor will view you as
  • That is why it is strongly not recommended that you close out an active credit trade line
  • This holds true even though you do not use it

Credit History Has 15% Impact On Your Overall Credit Scores

Your overall credit history has a 15% impact on your overall credit scores.

  • Those with a longer credit history will have a stronger positive impact on their credit scores than those who recently established credit
  • Both positive and negative credit will be reported on your credit report
  • When you go through a period of negative credit, it will be reflected on your credit report and it will really negatively impact your credit scores
  • However, as it ages, the negative credit derogatory items will have less and less of an impact of your credit report
  • All negative items will remain on your credit report for a period of 7 years and need to be removed by federal law

Bankruptcies remain on your credit report for a period for ten years.

The Type Of Credit You Have Has 10% Impact On Your Credit Report

Having different types of credit types will have a positive impact on your credit report.

  • For example, if you have a combination of credit cards, installment loans, auto loans, home loans, you will have a more positive impact on your credit scores than if you were just to have credit cards on your credit report

New Credit Is 10% Of The 5 Factors That Affect Credit Scores

New credit has a 10% impact on your credit scores.

  • When consumers apply for new credit, creditors will run a hard credit inquiry
  • Most hard inquiries will hit consumers negatively
  • A hard inquiry can drop a consumer credit score by 2 to 5 FICO points
  • The good news is that the drop is temporary

Credit scores on a hard inquiry drop will rebound in 30 to 90 days.

Credit Inquiries Have 10% Impact On Credit Scores

Credit inquiries have extremely negative factors on a person’s credit scores.  Each credit inquiry can affect a consumer’s credit scores by 2 to 30 FICO points.  Credit inquiries have a 10% impact on one’s credit scores.

This BLOG On The 5 Factors That Affect Credit Scores Was UPDATED On June 30th, 2019.

 

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