How To Improve Your Credit To Get Approved For a Mortgage
Are you dreaming of owning a home but worried your credit score might hold you back? You’re not alone. Many people believe they can’t qualify for a mortgage because of their credit. The good news? You can improve your credit and often much faster than you think. At Gustan Cho Associates, we help homebuyers every day who start with credit challenges and end up closing on their dream home. In this blog, we’ll show you how to improve your credit to get approved for a mortgage, step by step. Let’s turn your dream into a plan.
How To Improve Your Credit By Regularly Checking Your Credit Scores
To access all your credit scores, you can pay a small fee of $30 and create an account with Experian at Experian.com. By doing so, you can monitor your credit scores and observe how they change over time. Additionally, you can simulate and improve your Experian credit scores and easily dispute any errors on your credit report. Different types of debt impact your credit scores. For instance, a car loan exceeding your car’s value won’t harm your credit scores. Utilizing over 20% of your credit card limit can lower your scores. The credit card company might reduce your limit to match your balance, pushing your usage to 100% and potentially lowering your scores by up to 160 points.
Cash-Out Car Loan
Contact various credit unions and inquire about cash-out car loans. This type of loan allows you to borrow more than what you owe on your current car loan, and you can use the extra funds to pay off all your credit card balances. Lending Network, LLC, the consumer, business, and commercial lending platform of Gustan Cho Associates offers car loans at competitive rates and up to a 125% loan-to-value. Remember to retain all your credit card accounts, as closing them might negatively impact your credit. Given your credit score is 600, you might qualify for a cash-out car loan if the loan-to-value (LTV) ratio remains below 80%.
Research Credit Union Criteria
Contact different credit unions to gather essential information before applying for any loan. Some credit unions have a debt-to-income (DTI) ratio limit of 55%, while others set it at 35%. Look for a credit union with a higher DTI allowance, around 50%, and favorable LTV criteria for cash-out car loans based on your low credit score. Inquire about the credit bureau they utilize, which FICO score they consider, and whether they pull reports from all three credit bureaus.
Comprehend Loan Parameters
Ensure you understand the information you must request from the credit union. Ask about the LTV they offer for your credit score. For example, if your car is valued at $40,000, according to Kelley Blue Book, and you owe $20,000 on your car loan, an 80% LTV loan would provide you with $32,000. After settling your $20,000 car loan balance, you would have $12,000 remaining to pay off your credit cards. This would likely increase your credit score by 60 points, as your usage would drop from 100% to below 45%. Most credit cards have interest rates of 30% or higher, with $20,000 in credit card debt and a $600 monthly payment. On the other hand, car loans generally have interest rates below 7.99% with a 60-month term and a $400 payment. This amounts to a monthly savings of $200, accumulating to $2,400 annually.
Apply for Multiple Loans
When applying for a cash-out car loan, you can also consider applying for additional credit cards and personal loans from the same credit union. Utilize these funds to pay off the remaining credit card balances. If the creditor does not budge on removing your late payment, try to get three to five additional secured credit cards with at least a $500 credit limit on each secured card.
If your credit scores plummeted for one reason or another, try contacting the credit bureaus and asking for a one-time forgiveness on the late payment. Bad credit is like a hangover and takes time to fix.
If you unfortunately forgot to make a payment or your credit scores dropped, you must act fast and start rebuilding your credit. Get two credit rebuilder accounts to offset your bad credit with positive credit tradelines. Paying off all your credit balances could increase your credit scores by as much as 140 points. Look for credit unions that offer no-cost auto loans. Car loans are typically easier to obtain and are processed quickly, often within an hour.
Advantages of Credit Unions
Credit unions are owned by their members, focusing more on serving their members rather than generating profits for shareholders. Even if you only have a small account with a credit union, you can benefit from their loans, which come with lower interest rates and more lenient qualification criteria than traditional banks. Ensure you inform the loan officer that you intend to consolidate your debt and pay off your credit cards, as this will help exclude those payments from your DTI calculation. By following these tips, you can take charge of improving your credit scores on your own and save lots of money that would otherwise be spent on credit repair services and high credit card interest payments. Remember to be proactive, regularly monitor your credit, and make wise financial decisions to uphold and enhance your creditworthiness.
How to Improve Your Credit to Get Approved for a Mortgage
Are you trying to buy a house but worried your credit score isn’t high enough? You’re not alone. Many buyers are searching for answers on how to improve their credit to get approved for a mortgage and the good news is, it’s absolutely possible.
Whether you’ve had late payments, high credit card balances, or minimal credit history, this guide will help you improve your credit to get approved for a mortgage step by step.
At Gustan Cho Associates, we help buyers with low credit scores, past collections, and unique financial situations get approved for mortgages daily even when other lenders say no.
Why Your Credit Score Matters?
Your credit score signals to lenders whether you’re a low or high lending risk or how reliable you are as a borrower. Lenders may worry you won’t make timely payments if your score is low. That’s why it’s essential to focus on how to improve your credit to get approved for a mortgage before you apply. A better credit score can help you:
- Get lower interest rates
- Qualify for more loan options
- Save money on monthly payments
- Increase your chances of loan approval
Step 1: Check Your Credit Reports
The first step in how to improve your credit to get approved for a mortgage is to know what’s on your credit report. You can get free reports from:
Look for:
- Incorrect account balances
- Late payments you didn’t make
- Old collections that should’ve dropped off
- Accounts you don’t recognize
If you find errors, dispute them right away. Fixing credit report mistakes is a quick way how to improve your credit to get approved for a mortgage.
Step 2: Pay Your Bills On Time, Every Time
Your payment history counts for about 35% of your total credit score. Late payments can hurt your score fast. To stay on track:
- Set up auto-pay
- Use calendar reminders
- Make payments before the due date
Timely payments are essential how to improve your credit and be approved for a mortgage soon.
Step 3: Lower Your Credit Card Balances
Lenders look at your credit utilization—how much of your credit you use. Try to:
- Keep balances under 30% of your credit limits
- Pay off high-interest cards first
- Avoid using cards for large purchases
Lowering your debt is a fast and effective way how to improve your credit to get approved for a mortgage.
Step 4: Don’t Open New Credit Accounts
Starting a new loan or applying for a credit card causes a hard inquiry, which may lower your score. Avoid:
- New credit cards
- Personal loans
- Auto loans
Hold off on new debt how to improve your credit to get approved for a mortgage.
Step 5: Become an Authorized User
If a close relative or friend has good credit, they can help by adding you as an authorized user on their credit card. This strategy can:
- Add positive payment history
- Increase your credit age
- Improve your score without more debt
It’s a simple trick how to improve your credit to get approved for a mortgage more quickly.
Step 6: Use a Secured Credit Card or Credit Builder Loan
If you have no credit or are rebuilding, consider:
- Secured credit cards (you put money down as a deposit)
- Credit builder loans (small loans that build credit as you pay them off)
These tools are great for people starting from scratch and trying how to improve their credit so that they can get approved for a mortgage in the next few months.
Step 7: Don’t Close Old Credit Accounts
Older credit lines help your score. If you’ve paid off a card, leaving it open (unless it has high fees) is better. Closing old accounts:
- Lowers your average account age
- Can reduce your available credit
- It might hurt your credit score
Keeping old accounts open helps how to improve your credit so you can get approved for a mortgage over time.
Step 8: Be Patient and Consistent
Improving credit takes time, but it works. If you keep up with these habits regularly, most people start to see improvement in 30 to 90 days.
Stick with it. How to improve your credit to get approved for a mortgage is not about quick fixes it’s about building habits that last.
Extra Tip: Avoid Credit Disputes While Applying
Many people dispute accounts on their credit reports. That’s fine before you apply. But once you’re in the mortgage process, open disputes can delay or kill your loan approval.
Talk to your loan officer before disputing anything if you’re already house-hunting. It’s an essential part of how to improve your credit to get approved for a mortgage without hitting roadblocks.
Final Thoughts: You Can Get Approved
Don’t let bad credit stop you from becoming a homeowner. With the right strategy and support, you can improve your credit to get approved for a mortgage, even if your current score holds you back. At Gustan Cho Associates, we work with all types of borrowers and offer loan options that most banks cannot offer. If you’re ready to start your journey, we’re here to help.
Frequently Asked Question: How To Improve Your Credit To Get Approved For a Mortgage
1. What’s the first step how to improve your credit to get approved for a mortgage?
The first step in how to improve your credit to get approved for a mortgage is to check your credit reports for errors. Fixing mistakes can quickly boost your score and improve your approval chances.
2. How long does it take to improve your credit to get approved for a mortgage?
Most of the time, it’s possible to build up your credit to qualify for a mortgage in 30 to 90 days by reducing what you owe, staying current on your bills, and not applying for new credit.
3. Can I improve my credit to get approved for a mortgage if I have collections?
Yes! Even with collections, you can still improve your credit to get approved for a mortgage. Depending on your lender’s guidelines, you can pay them off, settle them, or let them age.
4. Does paying off credit cards help improve your credit to get approved for a mortgage?
Absolutely. Paying off cards helps you use less of your available credit, which improves your score, which is a significant factor in how to improve your credit to get approved for a mortgage.
5. Do late payments hurt my chances of getting mortgage approval?
Yes. Late payments can lower your score, but you can still how to improve your credit to get approved for a mortgage by staying current and making all future payments on time.
6. Can becoming an authorized user help improve your credit to get approved for a mortgage?
Yes! Being added as an authorized user on someone’s credit card with a good payment history is a great way to improve your credit and get approved for a mortgage fast.
7. Should I close old accounts to improve my credit to get approved for a mortgage?
No. Keep old accounts open. Closing them can hurt your score. Keeping them helps improve your credit score and ability to get approved for a mortgage by boosting your credit age and available credit.
8. Can I improve my credit to get approved for a mortgage if I don’t have a credit score?
Yes. If you have no credit, options like secured credit cards and small installment loans can help you start building credit and improve it to get approved for a mortgage.
9. What credit score do I need after I improve my credit to get approved for a mortgage?
Most FHA loans require a score of 580 or higher; conventional loans often need 620 or more. Improving your credit can help you reach those numbers and get better loan terms.
10. Can I get help to improve my credit to get approved for a mortgage?
Yes! At Gustan Cho Associates, we help buyers improve their credit daily to get approved for a mortgage no matter your starting point. Contact us to build a plan that works for you.
