How Credit Balance Impacts Credit Scores To Qualify For Mortgage


This BLOG On How Credit Balance Impacts Credit Scores To Qualify For Mortgage Was UPDATED On February 8th, 2019

How Credit Balance Impacts Credit Scores To Qualify For Mortgage

High Credit Balance Impacts Credit Scores Negatively:

Consumer credit scores play a huge impact on the mortgage loan approval process.

  • There are two major factors that will determine whether or not borrowers qualify for a residential mortgage loan: 
    • Income
    • Credit scores
  • To qualify for a 3.5% down payment FHA loan, borrowers need a minimum credit score of 580
  • However, any credit scores below 620, the debt to income ratios are capped at 43% debt to income ratios back end
  • There are no front end debt to income ratio requirements unless the particular lender have overlays
  • For those who have credit scores of higher than 620, the front end debt to income ratios gets a huge boost to 46.9% and the back end debt is capped at 56.9%
  • Having bad credit scores will always hurt
  • However, the good news is that low credit scores are temporary situations
  • Credit scores can be boosted by simple quick fixes

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

Consumers with maxed out credit cards, this will be hurting credit scores significantly. This is due to high credit balance impacts credit scores

  • Home Buyers planning on buying a new home in the near future, the first thing to do is to pay down credit cards
  • High credit balance impacts credit scores
  • Paying down credit cards to below a 10% credit balance will greatly improve credit scores
  • However, paying down credit cards will not automatically increase credit scores the next day
  • It normally takes 30 or more days for credit card companies to update and report on all three major credit bureaus: 
    • Transunion
    • Experian
    • Equifax
  • Those with three credit cards who have high credit balances who currently have a credit score under 580 can easily boost their credit scores north of 620 by paying down their credit cards
  • For the maximum credit boost effect, borrowers should pay down their credit card balance and just leave $10 dollar balance

 Don’t Pay Off Old Collection Accounts

Why not pay off old collection accounts

Borrowers with old collection accounts that have not been satisfied, leave those alone and not pay them.

  • Borrowers can qualify for with unsatisfied collection accounts, charged off 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
  • However, timely payments on all debt reporting to credit bureaus in past 12 months is normally required to get approve/eligible per Automated Underwriting System
  • By paying an old collection account, what it does is re-activates the old derogatory account and makes it a fresh derogatory account also known as Date Of Last Activity (DLA)
  • By re-activating an old collection account, credit scores can drop
  • I have seen credit scores drop 80 or more points when consumers paid off an old collection account

Opening Secured Credit Cards To Increase Scores

Borrowers low credit scores due to no credit and prior bad credit, getting secured credit cards will boost credit scores significantly.

  • Each secured credit can possibly boost credit scores by at least 20 or more points for those with no credit or very little credit
  • 3 to 5 secured credit cards will really maximize credit scores and credit scores will gradually improve as secured credit cards ages

Qualifying For Home Loan With Bad Credit

How to qualify for a home loan with bad credit

  • Home Buyers who need to qualify for home loan with bad credit with a direct lender with no mortgage overlays can contact us at The Gustan Cho Team at 262-716-8151 or text us for faster response. Or email us at We have zero lender overlays on FHA, VA, USDA, and Conventional Loans. The Gustan Cho Team at Loan Cabin Inc. is one of the largest national correspondent lenders of non-qm loans and bank statement loans for self employed borrowers. All of our pre-approvals are full credit mortgage approvals that has been fully underwritten and signed off by our mortgage underwriters.

Gustan Cho

Commercial And Residential Mortgage Information Center

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