In this guide, Zack Hoyer of Gustan Cho Associates will cover tricks and tips on how to build and improve your credit fast to qualify and get pre-approved for a mortgage. We will cover the tricks to build and improve your credit fast to buy a house and common mistakes that will drop your score. What the banks won’t tell you that will get you a denial for a mortgage because they don’t know. Alex Carlucci explains what Gustan Cho Associates offers that the competition does not by the following statement:
The team at Gustan Cho Associates are experts in helping homebuyers with credit scores down to 500 FICO. Over 80% of our clients are borrowers who could not qualify at other mortgage lenders due to lender overlays or because they needed to have the mortgage loan program best suited to the borrower.
In the following sections of this guide, we will cover how to build and improve credit fast to buy a house within six months. You do not need to hire a credit repair company to fix your credit so you can buy a house. Whatever the credit repair company does, you can do it yourself. Credit repair companies can backfire on you. Talking to a loan officer before starting any credit repair regimen is best.
How FICO Credit Scores Equal Lower Mortgage Rates
Have you ever had your score go down by 20 points and then go right back to where it was the next month and don’t know why? Even if it only dropped 5 points, that 5 points can be the difference between getting or denied for a mortgage or being told you need to put 10% down instead of 3.5% or even 0%!
You should always have your credit card balance or credit utilization ratio to under a 10% balance or low for maximum optimization and credit score increase. Any balance higher than the 10% credit utilization ratio will lower your credit scores.
You pay all your bills on time and have yet to apply for any new credit or cancel or reduce any old credit. Your length of credit history is another month long, so it shouldn’t be that. You have a good mix of credit. You always pay your credit card bill down to 49% of the credit limit by the due date to always show 51% available credit. So what gives? What could have changed that would cause your score to drop?
What Factors Determine Credit Scores
In my years of credit coaching and then coaching my clients to get them approved for a mortgage, the most common reason? Always paying their credit card bill down to the same 49% of the credit limit, always on or by the due date. Wait, what? That doesn’t sound right. But it is, and here’s why:
Remember that you can maximize your credit scores by paying down all of your credit cards. The lower the balance, the higher your credit scores. It is no rocket science to boost and maximize your credit scores.
Credit card companies like to see you keep your balance below 50%, or even better, 30% or 10% of your available credit. This percentage is called your credit utilization ratio.
How To Build and Improve Your Credit Fast By Knowing When To Pay Down Your Credit Card Balance
Why does paying my balance down to 49% by the due date not help? This is where it gets tricky. Credit card companies only report your utilization ratio to the credit bureaus once a month. You would think they would report it on the bill’s due date. That’s different from how it works. John Strange of GCA Mortgage Group explains the importance of keeping a low credit card balance.
High credit card balances can plummet credit scores. Consumers with high credit card balances or high credit utilization ratios will have lower credit scores The best way how to build and improve your credit fast is by paying down your credit card balance below a 10% utilization ratio.
Almost every major bank reports your balance, and therefore your utilization ratio, to the credit bureaus not on the day your last bill was due but on the DAY THE CURRENT STATEMENT CLOSES. And your statement always closes a few days after your due date. Last time I checked, the only exception was U.S. Bank, which reports on the first of every month, no matter when the statement closes, or the due date is.
Case Scenario on How To Build and Improve Your Credit Fast To Purchase a House
Here’s a real-life example of how to build and improve your credit fast to purchase a home. You’re rebuilding your credit, and you have three credit cards; two have a $1000 limit that you don’t use and have balances of $450, and they are current. You’re under 50%, good job!
Remember that you can have lower credit scores, outstanding collections, unpaid charge-off accounts, and older derogatory credit tradelines, and still get qualified and approved for a mortgage. You do not have to pay outstanding collections or charge-off accounts. However, you do need to have been timely on all of your monthly payments that report on the credit bureaus for you to get the best chances of getting an approve/eligible per automated underwriting system.
You also have a card with a $2000 limit which you pay off every month by the due date. Your $2000 limit card bill is due on the 15th, and the statement closes on the 18th. This is the only card that you use for all your purchases. Every month you pay it down to zero. Last month your score was 664. It’s around 660 monthly because you have diligently paid it to zero. You bought a few small things on the 16th and 17th, so the amount due this month was a couple hundred bucks, which you paid down to zero on the 15th. The next day You buy the TV and sound bar you’ve been saving for.
The Importance of Knowing When Creditors Report Balance To Credit Bureaus
Being the smart consumer that you are, you use your credit card instead of your debit card so that you will get cashback—intending to pay the TV off in full before the next due date—big mistake. Had you bought it after the 18th, you’d be good. When the bank reports your balance on your statement close date, it doesn’t report what your balance was after you paid last month’s bill.
Knowing when to make your credit card payment is an art. If you can be strategic and make your credit card payment at a certain date where the credit card company will credit you right away, you will always have high credit scores before you are only utilizing the high credit card balance for a few days.
We have helped thousands of families, and we can help you too. It may only be 6 to 12 months or more away from being able to qualify for a mortgage at most if you have bad credit and low credit scores. Fill out this form, call, or email. I’ll show you how much quicker and easier it can be to get qualified when you’re working with the team and me at Gustan Cho and Associates!
How Quickly Can You Improve Your Credit Score To Buy a House
It takes time for your credit balance to report to all three credit bureaus. You cannot assume that the credit bureaus will immediately report your payment. A maxed-out credit can drop your credit scores significantly. However, the drop is temporary, and your credit scores will increase once you pay down the balance, which is reflected on the credit bureaus.
The best way to optimize high credit scores is to make your credit card payment before the last deadline post-date. This way, the credit card balance will update right away and you do not have to get hit with the high balance where your credit scores drop.
It reports whatever the balance was on the day that your statement closes. So, in this scenario, you go from usually showing a credit utilization ratio of only a few percent every month to a utilization ratio of 95%. The reason is that, after your purchase, you’ve used up almost all your available credit, even though that’s not due until next month. If your bill is, say, $1200 and due on the 15th, and you pay it down to zero on the 15th exactly, then made $1800 on the 16th and had another $100 in charges on the 16th and 17th, the balance that will get reported on the 18th is $1900. Your score just went from 664 to 616.
How Long Does It Take To Build and Increase Your Credit Fast To Buy a House
Don’t be hard on yourself. It’s a common mistake; your score will return to 660+ when it shows a zero balance next month. Only buy something between when you pay your bill in full on the due date and the day your statement closes! It didn’t matter when you made that purchase. The system doesn’t notate that. It just shows what the balance was on that specific day.
Get a credit monitoring services like Credit Karma, MyFICO, or Experian Score Booster. Most of these credit monitoring service is free. You can also get a tri-merger credit report at no charge once a year from annualcreditreport.com. Get one report every four months so you can see a credit report from each credit bureau three times a year.
I know that’s complex, but hopefully, it helped. The scenario I described above is a common mistake people make that can, and usually will, drop your score by at least 20-40 points. It is also easily avoidable when you have the right person/team guiding you through the mortgage process.
Work With a Loan Officer To Rebuild Credit and Increase Scores Fast
If you are sick of paying into your landlord’s equity and want to start paying into your own, you can qualify and get pre-approved for a mortgage and buy a house fast. Many first-time homebuyers do not realize you can buy a house with bad credit if you have been timely on all your monthly payments that report on the credit bureaus for the past 12 months. You do not need a 20% down payment to buy a house.
The team at GCA Mortgage Group has down payment assistance programs that are forgivable after six months. Our down payment assistance program is for fist-time homebuyers or first responders and requires a 3.5% down payment a 48.99% debt-to-income ratio, and is a borrower paid transaction, so a 6% seller concession is required. We will help you structure the no money down down payment assistance FHA loan program.
If you have poor credit and credit scores under 580 but have an income and work history, the team at Gustan Cho Associates can help you qualify for a mortgage fast. We can help you maximize your credit score and rebuild your credit. If everyone tells you that it is impossible, try us.
April 15, 2023 - 7 min read