How Credit Card Usage Impacts Credit Scores To Qualify For Mortgage
This BLOG On How Credit Card Usage Impacts Credit Scores Was UPDATED On November 29th, 2019
There are mortgage guidelines on credit score requirements. The first step in qualifying for a particular mortgage loan program is to meet the minimum credit score requirements.
Here are the minimum credit score guidelines on loan programs:
- HUD requires a minimum credit score of 580 FICO to qualify for 3.5% down payment home purchase loans
- Mortgage applicants can qualify for FHA Loans with under 580 credit score:
- but need to put 10% down payment on home purchase
- Home buyers can qualify for FHA Loans with a minimum of 500 FICO
- Both Fannie Mae and Freddie Mac require 620 credit scores to qualify for Conventional Loans
- Most lenders require a 620 credit score for FHA 203k Rehab Loans
- Department of Veteran Affairs (VA) does not have a minimum credit score requirement :
- But most VA Lenders prefer 580 FICO for VA Loans as part of their overlays
- Jumbo Lenders require 680 FICO credit scores
- The Gustan Cho Team has alternative financing for Jumbo Loans down to 500 credit scores
- Portfolio Lenders require 680 credit scores for condotel financing and non-warrantable condo loan programs
- Fannie Mae 5 to 10 Financed Properties require 720 credit scores
- No Doc Investment Property Loans require 660 FICO
- No Doc Fix And Flip Rehab Loans require 600 credit scores.
How Credit Card Usage Impacts Credit Scores To Raise Scores
For those who have low credit scores and need to boost up their credit scores to qualify for a mortgage loan, there are quick fixed on how credit card usage impacts credit scores.
- Maxed out credit cards will plummet credit scores
- One way to really boost up credit scores is to pay down your credit cards to a $10 balance
- If credit limit is $2,000 and credit card balance is $1,900, credit scores can instantly increase by paying down credit card balance
- How credit card usage impacts credit scores is by always leaving a small balance on credit card and never a zero balance
Adding New Credit Will Increase Credit Scores
Consumers with no credit tradelines will normally have low credit scores. Consumers can easily get credit scores of over 700 FICO one year after bankruptcy and/or foreclosure if they have added new credit cards.
- Consumers should get 3 secured credit cards with at least a $500 credit limit for maximum credit score potential
- Never have a zero balance because part of the credit scoring model is when credit bureaus will take the credit card balance and divide it by the credit limit
- The smaller the factor, the better credit scores consumers will get
- When dividing anything into zero, it yields a zero so a $10 dollar balance in each credit card is recommended
- Consumers with only have two credit cards, you should get another credit card
- Consumers who filed bankruptcy or had a prior foreclosure and have no credit and their credit scores are in the mid 500s, they should get 3 secured credit cards and leave $10 dollar balances in there
- Credit scores should increase 30 points per credit card and the overall credit score should increase by 100 points by having the 3 secured cards over the course of time
- Anything under a $500 credit limit has little effect
- As consumers make timely payments on secured credit cards and as the cards ages, the consumer will develop a stronger credit profile
- With timely monthly payments made by consumers, secured credit card companies will increase credit card holder’s credit limit over time without requiring an additional deposit
Secured Credit Cards Tool To Increase Credit Scores
Credit cards is the best tool to re-establish and rebuild credit. Secured credit cards is the fastest way consumers can boost their credit scores.
- By utilizing credit cards to boost credit scores
- For those who do not have any credit cards, adding one secured credit card can boost their credit scores by at least 20 to 30 points
- The higher the credit limit, the better
- For maximum credit score optimization, consumers should get at least a $500 credit limit on each secured credit card
- Any credit limits under $500 will have little impact
- Never be late on secured credit card payments:
- Secured credit card companies will report payment history on credit bureaus like unsecured credit cards
- Late payment on secured credit cards will plummet consumer credit scores and will remain on credit report for 7 years
Update On How Credit Card Usage Impacts Credit Scores
This mortgage blog article post on how credit card usage impacts credit scores was updated on November 29th, 2018. Home buyers who are planning on getting pre-approved for a mortgage should make sure that they pay down their credit cards and leave a $10 dollar balance on it. Maxed out credit cards will plummet credit scores temporarily. Low credit scores will not just disqualify someone from qualifying for a mortgage but low credit scores will affect mortgage interest rates borrowers will get. Low credit card balances is key on having high credit scores and qualifying for mortgage with lower mortgage interest rates.