How Credit Balance Impacts Credit Scores

High Credit Balance Impacts Credit Scores Negatively:

You credit scores play a huge impact in the mortgage loan approval process.  There are two major factors that will determine whether or not you qualify for a residential mortgage loan:  Income and credit scores.  To qualify for a 3.5% down payment home purchase mortgage loan, you need a minimum FICO credit score of 580.  However, any credit scores below 620 FICO, the debt to income ratios are capped at 43% debt to income ratios back end and 31% debt to income ratios front end.  For those who have credit scores of higher than 620 FICO, the front end debt to income ratios gets a huge boost to 46.9% and the back end debt to income ratios gets capped at 56.9%.  Having bad credit scores will always hurt you.  However, the good news is that low credit scores are temporary situtations and credit scores can be boosted by simple quick fixes.

Easy Quick Fixes To Boost Credit Scores: Credit Balance Impacts Credit Scores

If you have maxed out credit cards, this will be hurting your credit scores significantly because high credit balance impacts credit scores.  If you are planning on buying a new home in the near future, the first thing you should do is to pay down your credit cards because high credit balance impacts credit scores.  Paying down your credit cards to below a 25% credit balance will greatly improve your credit scores.  However, paying down your credit cards will not automatically increase your credit scores the next day.  It normally takes 30 or more days for your pay down of your credit cards to report on all three major credit bureaus:  Transunion, Experian, Equifax.  Those with three credit cards who have high credit balances who curently have a credit score under 580 FICO can easily boost their credit scores north of 620 FICO by paying down their credit cards.  For the maximum credit boost effect, the mortgage loan borrower should pay down their credit card balance and just leave a $10 dollar balance on it.

 Don’t Pay Off Old Collection Accounts

If you have old collection accounts that have not been satisfied, leave those along.  You can still get a mortgage loan with unsatisfied collection accounts and derogatory credit.  Everyone can get a home loan with bad credit as long as they have income and prove the source of income.  By paying an old collection account, what it does is re-activates the old derogatory account and makes it a fresh derogatory account.  By re-activating an old collection account, your credit scores will drop.  I have seen credit scores drop 80 or more points when a consumer paid off an old collection account.

Secured Credit Cards Will Boost Credit Scores

If you have low credit scores due to no credit and prior bad credit, getting secured credit cards will boost your credit scores significantly.  Each secured credit can possibly boost your credit scores by at least 20 or more points if you have no credit or very little credit.  3 to 5 secured credit cards will really maximize your credit scores and your credit scores will gradually improve as your secured credit cards ages.

Gustan Cho

Commercial And Residential Mortgage Information Center

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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