How To Improve Credit Scores To Qualify For a Mortgage

Gustan Cho Associates are mortgage brokers licensed in 48 states

This blog will cover how to improve credit scores to qualify for a mortgage. Borrowers’ credit payment history and scores are among the most important factors that mortgage lenders consider when qualifying mortgage borrowers. All mortgage loan programs have minimum credit score requirements. To get approved for a 3.5% down payment FHA loan, you need a 580 credit score. USDA loans generally require a 580 credit score. VA does not have a credit score requirement.

What Credit Score Do You Need To Buy a House?

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All government and conventional loan programs have minimum credit score requirements.  To get approve/eligible per Automated Underwriting System, a 580 credit score is highly recommended. Conforming Loans require a 620 credit score. Non-QM Jumbo Mortgages require 620 credit scores. Jumbo Lenders and HELOC lenders require a 700 minimum credit score. Non-QM jumbo lenders can qualify with a 550 FICO credit score. For borrowers with lower credit scores, Gustan Cho Associates will help them improve their credit scores to qualify for mortgages.

Why Is Credit Score Important In Getting a Mortgage?

Credit scores determine whether borrowers qualify for a certain mortgage loan program. For example, to qualify for a 3.5% down payment FHA Home Loan, borrowers need a minimum credit score of 580. A 580 will limit debt to income ratio cap to 43%. Borrowers with high debt-to-income ratios need to improve their credit scores to 620 credit score. This is because the debt-to-income cap increases to 56.9% if credit scores exceed 620 FICO.

Fannie Mae Credit Score Guidelines on Conventional Loans

To qualify for a conventional loan, the minimum credit score required is 620. However, a 629 credit score is considered a super-low credit score for conventional mortgage lenders. Borrowers with lower credit scores will get penalized by getting offered a very high-interest rate on conforming loans. To get the best conventional interest rate, borrowers need a credit score of over 740. Any credit score under 740 will get a price adjustment on conventional loans. Credit scores are not as important for FHA loans in getting the best rates.

Does a Better Credit Score Affect Mortgage?

Any FHA mortgage loan applicant with a credit score of under 640 will get a higher interest rate than those with a 640 credit score or higher. Jumbo mortgage loan applicants need credit scores of 740 to qualify for the 10% down payment jumbo mortgage loan program. Gustan Cho Associates offer non-QM jumbo mortgages for borrowers with credit scores down to 620. This article will cover and discuss how to improve credit scores to qualify for a mortgage.

How To Improve Credit Scores To Qualify For Home Loans

How To Improve Credit Scores To Qualify For Home Loans

The great news is that borrowers can improve credit scores. There are ways how to improve credit scores to qualify for home loans. We will cover tips and quick fixes on how to improve credit scores so borrowers can qualify for a mortgage. Other reasons to take advantage of How To Improve Credit Scores are so borrowers can get the best mortgage rates. Improving and repairing credit is like planting grass seeds and watching grass grow. It takes time and patience. However, it can get done. It is like losing weight. If consumers do not work at it diligently, it will not happen. But if people work at it religiously, they will lose weight over time. Same with credit repair. There are ways How To Improve Credit Scores. People can improve their credit scores if they discipline themselves by making all minimum monthly payments on time.

Steps On How To Improve Credit Scores To Qualify For a Mortgage

Steps On How To Improve Credit Scores To Qualify For Mortgage

There are three giant credit reporting agencies:

  1. Transunion
  2. Experian
  3. Equifax

These three big credit bureaus are not perfect, and they make tons of mistakes. The first step is to review the credit bureaus’ credit reports. All consumers are entitled to a free credit report from the three credit reporting agencies. Consumers can visit Annual Credit Report and request a free credit report every year. Once consumers get credit reports, review each line item by line item and check for errors.

Make sure that all of the credit line items that are being reported are correct. Carefully look for any late payment history, collection accounts, public records, and balances posted by creditors. The information that is on the credit report is the data that is used to derive credit scores. So if there are mistakes posted on the credit report, it will yield a lower credit score.

Credit Disputes To Remove Incorrect Credit Tradelines

Consumers can dispute that particular item if there is any misinformation posted on the credit report. Send a dispute letter and any documentation to prove to the credit bureaus that they have made a mistake.

By law, they have 30 days to contact the creditor reporting negatively on the credit bureaus. That creditor needs to provide proof and validate what they are reporting. If the creditor does not provide proof in 30 days or does not respond to the credit bureaus, the credit bureaus need to delete the negative item from the credit report.

Late Payments and Impact on Credit Scores

Consumers should religiously pay all of the minimum credit payments on time. One late payment will not only drop credit scores by 50 or more points but will be reflected on the credit report for seven years. Consumers will always have that late payment history on their credit reports. The payment history record will comprise 35% of the credit score calculation. A late payment is not the end of the world. But it will drastically drop credit scores initially. As time passes, the late payment will have less and less impact on credit scores. However, it does take time. It’s like recovering from a major hangover.
Late Payments and Impact on Credit Scores

Do Not Pay Old Dormant Collection Accounts

Do Not Pay Old Dormant Collection Accounts

Paying off an old collection account should not be done. Borrowers can qualify for mortgages with outstanding collections and charged-off accounts without paying them off. Paying off an old collection account is re-activating the dormant collection account and re-starting the clock on the statute of limitations on debt.

I have seen credit scores drop over 70 points by paying off an old collection or charged-off account. My client did not need to pay off the old collection account. But she, in good faith, thought that was the right thing to do. Unfortunately, it backfired on her and her credit scores. It plummeted scores, and we now have to wait a few months to recover from that negative impact.

Can You Buy a House With Accounts in Collections?

The older an unsatisfied collection account is, the less impact it has on one’s credit scores. Mortgage lenders do not require borrowers to pay off older collection accounts unless the lender has mortgage overlays on outstanding collections, which require that collection and charged-off accounts be paid off. In the event, that the lender requires a collection account to be paid off to get a mortgage loan approval, then try making a deal with the collection agency with a pay-for-delete.

This means that instead of paying off the old collection account, the collection agency needs to remove the derogatory collection credit item from a credit report. Most collection agencies will do this. If consumers end up with a collection agency that refuses to delete the derogatory credit item off the report instead of payment in full, then ask to speak to a supervisor.

High Credit Card Balances Will Lower Credit Scores

what are High Credit Card Balances Will Lower Credit Scores

Credit scores will fluctuate from month to month. Fluctuations depend on how much credit balance consumers have on their credit card balance. The lower the credit balance, the higher the credit scores. For consumers with a $1,000 credit limit, credit card, and a balance are $990. Credit scores will be low. Paying off the balance or having at least a 10% credit card balance of credit limit will optimize credit scores. The available credit on credit cards is a huge factor in positively optimizing credit scores.

Closing Out Revolving Accounts

Never close out an activated credit card or revolving credit account that is not used. Also, always have a small balance on credit cards and do not leave a zero balance. Credit scores are derived from a credit history with an available credit limit. Closing out an active aged credit account will harm overall credit scores and credit profiles. Do not go and open up multiple new credit accounts in a short period of time.

Opening up one or two new accounts every year is fine. Opening up multiple new accounts all at the same time will lower the overall credit history age. It will hurt credit scores. Remember that a portion of credit scores comes from the age of credit history. Common sense is that opening new accounts will lower the aged credit accounts. Again, I strongly recommend opening new credit accounts but not a dozen in one month. One to two new credit accounts a year will be a great future benefit to the credit profile.

Re-Establishing Credit After Bankruptcy and Foreclosure

what is Re-Establishing Credit After Bankruptcy And Foreclosure

For those with a recent bankruptcy or foreclosure, chances are that credit scores have plummeted. That is okay. The sudden drop in credit scores will not be permanent. Even nothing is done to re-establish credit after bankruptcy or foreclosure. Credit scores will naturally improve over time. However, those who want to improve their credit and be able to get a mortgage loan as soon as possible need to re-establish credit as soon as humanly possible. The best way how to improve credit scores to qualify for a mortgage after bankruptcy and/or a housing event is by getting three secured credit cards.

How To Rebuild Credit After Bankruptcy For Mortgage Approval

Most people assume that they will only have to deal with cash due to bankruptcy or foreclosure, and re-establishing credit is out of the question. This is not correct. The easiest and fastest way to improve credit scores and re-establishing credit after bankruptcy and foreclosure is to get 3 to 5 secured credit cards with at least a $500 credit limit. Use these cards regularly. Never ever miss a payment. Pay all of the credit card minimum monthly payments on time.

Even though they are secured credit cards, the credit card provider will report the late payments to the three credit reporting agencies, which will hurt credit scores. Negatively reported items and payment histories from creditors, even secured credit card companies, are on the credit report for seven years. Homebuyers with lower credit scores who need to qualify for a mortgage with a direct lender with no mortgage lender overlays on government and conventional loans can contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at We also offer non-QM mortgages for self-employed borrowers. We are available seven days a week, evenings, weekends, and holidays.

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