How To Raise Credit Scores To Qualify For Mortgage

This guide covers how to raise credit scores to qualify for mortgage at the best rates. Many home buyers ask how to raise credit scores to qualify for mortgage? Borrowers need a specific minimum credit score to qualify for a mortgage. For example, the minimum credit score requirements to qualify for mortgage loan programs are here. FHA Guidelines On Credit Scores require that borrowers have a 580 credit score to qualify for a home 3.5% down payment home purchase loan.  HUD has debt-to-income ratio requirements on FHA loans with minimum credit score requirements. FHA limits the debt-to-income ratio to 43% for borrowers under 620 credit scores.

Borrowers with at least a 620 Credit Score or higher can reach a 46.9% front-end and 56.9% debt-to-income ratio.

Those with higher debt-to-income ratios need to raise credit scores to qualify for a mortgage with FHA. VA loans do not have a minimum credit score requirement. Fannie Mae and Freddie Mac require credit scores of at least 620 ICO to qualify for conventional loans. Most Jumbo lenders require credit scores of at least 700 FICO. Portfolio lenders will require credit scores of at least 680 FICO. Two of the most important mortgage qualifying factors are documenting and verifying qualified income and credit scores. This article will cover how to qualify for a mortgage by boosting your credit scores.

Qualifying For Home Loans Today

As long as borrowers have documented verified qualified income and have low credit scores, there is hope in qualifying for a mortgage loan. There are quick fixes on how to raise credit scores to qualify for a mortgage. However, there are no quick fixes to raising documented, verified, qualified income. This holds true unless borrowers get a raise, a promotion, or a change to a better-paying job. However, credit scores fluctuate monthly. In this article, we will show our viewers some quick fixes on how to raise credit scores to qualify for a mortgage.

Adding New Credit Is a Great Way To Raise Credit Scores To Qualify For Mortgage

Gustan Cho Associates runs into many folks who come to us for a mortgage who did not have any late payments and pay all their bills on time but cannot get to a 580 FICO credit score. A 580 credit score is required for a 3.5% down payment FHA home purchase loan. One of the reasons why these folks do not have a 580 FICO credit score is because they have no active revolving credit tradelines.

How Can You Raise Credit Scores To Qualify For a Mortgage Fast

Here is how they can instantly boost their credit scores:

• Secured Credit Cards
• Adding Yourself On As an Authorized User
• Credit Disputes
• Paying Down Credit Card Balances

Secured Credit Cards To Raise Credit Scores To Qualify For Mortgage

Get three secured credit cards with at least a $500 credit limit. The way secured credit cards work is that consumers make a deposit with the secured credit card provider. The credit card provider will get the consumer a credit limit equivalent to the deposit amount. There is a fee for this and an annual membership fee. This fee and cost are well worth their weight in gold. Consumers do this not to get a credit card but to establish their credit.

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Do Secured Credit Card Companies Report Late on Credit Bureaus

Do not ever be late on any monthly payment. This is because secured credit card companies will report late payments on the credit report. For those who are timely on monthly payments for six months to a year, the secured credit card company will raise the credit limit without asking the cardholder for any additional deposit. This is the easiest way to establish credit and raise credit scores. For those with no active revolving credit, adding each secured credit card with at least a $500 credit limit can boost credit scores by at least 20 points for each card.

Adding Yourself on As Authorized Credit Card User To Raise Credit Scores To Qualify For Mortgage

Many credit repair companies sell credit tradelines. A credit tradeline is a revolving credit card account that has been seasoned for at least 12 months and is a very positive factor for a borrower. It shows past on-time payment history. Lenders view a past timely payment credit history as indicating that the borrower will be timely on future payments. The way credit repair companies sell credit tradelines to borrowers. This works by adding the borrower to their credit card account with large limits and low credit balances. This strategy used to work but no longer works because the credit bureaus caught on.

Adding As Authorized Credit Card User

Adding yourself to another person’s credit card account with a different address no longer boosts credit scores. It does give you credit tradelines. But will not greatly affect credit scores. However, adding yourself to another person’s credit card when that person lives with you and shares the same address will help raise credit scores. Consumers can drastically boost credit scores.

Adding Yourself as an Authorized User Will Increase Your Credit Scores

Adding yourself as an authorized user to a spouse’s credit card, son or daughter’s credit card, or parent’s credit card as an authorized user will raise credit scores to qualify for mortgage. Remember that you are the main user of the credit card, and you need to have the same address for this strategy to work. For this strategy to work, the main cardholder must never be late on their credit card payments and have a very low balance. Lower than 10% balance compared to the credit card limit.

Credit Disputes As Strategy To Raise Credit Scores To Qualify For Mortgage

There are strict rules and guidelines on credit disputes during the mortgage process, especially with FHA loans. Here are the guidelines for credit disputes during the mortgage process:

You cannot have credit disputes on non-medical collection accounts if the total outstanding unpaid balance totals greater than $1,000.

You cannot have any credit disputes on charge-off accounts. Borrowers are allowed to have credit disputes on non-medical collection accounts on items that have zero balances. You can have credit disputes on medical collections no matter how much the outstanding unpaid balance.

Why Can’t You Have Credit Disputes During Mortgage Process?

The main reason consumers cannot have credit disputes is that once the verbiage Consumer Disputes Account is on the collection account or derogatory item in question, the credit bureaus will automatically take that collection account or derogatory account off the FICO credit scoring model. So, that derogatory item is not counted when factoring in your credit scores.

The bottom line is that once a credit dispute is triggered, credit scores will go up. This is because the collection or derogatory accounts do not exist under the credit scoring formula.

However, the derogatory item is factored back once consumers retract credit disputes. Therefore, credit scores will plummet. Retracting credit disputes will drop credit scores. Lenders should not issue pre-approval letters unless all credit disputes have been retracted.

Disputing Medical Collections To Raise Credit Scores To Qualify For Mortgage

Here is a quick trick of the trade to temporarily boost your credit scores by disputing medical collections and non-medical collection accounts if your collection account balances are under $1,000 or zero balances: Consumers with recent medical collection accounts can dispute them. Credit scores will go up. The credit bureaus will take those collections out of factoring consumer credit scores.

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Are Credit Disputes on Medical Collection Accounts Exempt

Medical collections are exempt from credit disputes. Borrowers are allowed to dispute medical collection accounts. Borrowers with non-medical collection accounts with aggregate balances of under $1,000 can dispute those. Credit bureaus will take those negative items off the factoring of credit scores. Credit scores will go up. Remember that these are temporary fixes. Once those derogatory items are verified by the creditor or collection agency or the credit disputes are retracted, credit scores will go back down. Lenders will use the middle credit score. The credit score they use to submit borrowers will be the middle credit score. Middle credit scores will be used throughout the mortgage process and are good for 120 days.

Paying Down Credit Card Balances

Maxed-out credit cards will plummet credit scores. Ensure credit card balances are at or below 10% of the limit. Maxed-out credit cards can plummet credit scores by more than 100 points. The amount of drop depends on how many maxed-out credit cards consumers have.

Paying down credit card balances will be a quick fix to raise credit scores to qualify for a mortgage.

Borrowers have lower credit scores and need advice on how to raise credit scores to qualify for a mortgage. Please contact Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays. Contact Us For Help Related To Mortgage Loans

How To Maximize Credit Scores To Qualify For a Mortgage No More Than 10% Of Credit Limit

Carrying high credit balances will lower your credit scores, says Dale Elenteny, a senior loan officer at Gustan Cho Associates. However, the good news is that the drop in credit scores due to high balances is temporary. Credit scores will go back up by paying down the credit balance to 10% of the credit limit. A 10% credit balance or less will maximize your credit utilization ratio, comprising 30% of your overall credit score.

How To Maximize Credit Scores To Qualify For a Mortgage By Not Closing Out Credit Cards

Closing out an active credit card account will hurt your credit score. Many people close out credit card accounts that they no longer use. However, by doing so, they are hurting themselves and killing credit that has been seasoned. This hurts credit scores because this task will lower the amount of credit available to the consumer, lowering debt utilization ratios. The longevity of credit history is part of the overall credit score, so keeping a credit card that has been aged will help maximize credit scores.

Avoiding Late Payments Is Another Way On How To Maximize Credit Scores

Consumer payment history will make up 35% of credit scores. Recent late payments will likely drop credit scores by at least 50 plus points, and it will take months to recoup this loss. Many lenders frown on late payments in the past 12 months and will not accept any borrowers with late payments in the past 12 months. Some lenders will not accept anyone who has a late payment after a bankruptcy or foreclosure.

Credit Inquiries

Each hard credit inquiry can drop your credit scores by 2 to 5 points. Consumers who need to apply for credit do so but do not apply to a dozen credit accounts all in a month. Aggressive credit inquiries will drop credit scores and create a red flag for potential creditors. Creditors will look at too many inquiries as a credit risk that the person applying for credit can become overextended and pose a high risk, thereby denying the credit request.

Borrowers With No Credit Scores

For those with no credit and no credit scores, this can pose a problem also. Having no credit or credit scores can be similar to having bad credit because creditors will not extend credit to those with no credit or payment history. Everyone should start establishing their credit as soon as possible. The best way to establish new or re-establish bad credit is by getting three secured credit cards with a minimum of a $500 credit limit.

Having a diversified credit profile is important.  By diversity, we mean not just credit cards but credit cards, auto loans, installment loans, mortgage loans, etc.  Diversity of credit accounts for 10% of overall credit score.

Borrowers who need to qualify for a mortgage with a lender with no lender overlays on FHA, VA, USDA, and Conventional loans, please get in touch with us at Gustan Cho Associates at 800-900-8569 or text us for a faster response.  Or email us at gcho@gustancho.com. Over 80% of our borrowers are folks who either got a last-minute loan denial or are stressed during their mortgage process. We have no lender overlays on FHA, VA, USDA, and Conventional Loans. We are available evenings, weekends, and holidays seven days a week.