How to Increase Credit Scores to Qualify for a Mortgage

When you apply for a home loan, you want to increase your credit score quickly. There are a few proven ways:

  • Have your lender use a rapid rescoring service to correct errors.
  • Ask a friend or relative with good credit to add you to a credit card as an authorized user.
  • Pay down balances or increase available credit to drop utilization.

These proven methods can raise your score in days or weeks, not months.

Prequalify for a mortgage in just five minutes. 

The Importance of Higher Credit Scores 

What are the minimum credit score requirements to qualify for home loans?

  • FHA mortgage minimum credit score is 580 for loans with 3.5% down and 500 for loans with 10% down.
  • The VA has no minimum credit score but lenders often set it at 620.
  • USDA loan providers often set their minimum at 640.
  • Conforming lenders (Fannie Mae and Freddie Mac) established their minimum credit scores at 620.
  • Non-prime lenders can go as low as 500 with big down payments.

Understand that for many programs, you may meet the minimum score but not get loan approval. To offset a low credit score, you may need compensating factors like bigger down payments or more income or low payment shock (a payment that does not increase much over your current housing expense).

improve credit score

Qualifying for a Mortgage With Outstanding Collections and Charge-Offs

Homebuyers with bad credit can qualify for FHA Loans with outstanding collections and charged-off accounts.

You do not have to pay collections and charged-off accounts to qualify for FHA loans. You don’t necessarily need credit repair services either. Lenders understand that people have periods of bad credit. However, they want to see re-established credit after a period of bad credit.

Timely payments in the past 12 months are crucial if you want fast approval through an automated underwriting system (AUS). There are many ways to increase credit scores and qualify for a mortgage. Borrowers with under 580 credit scores can contact us at Gustan Cho Associates and our team of licensed and support personnel can guide them on how to increase credit scores to qualify for a mortgage.

How Credit Repair Works

As mentioned earlier, credit repair is most often not required to qualify for a mortgage. Many times credit repair can backfire when qualifying for a mortgage. You should not have credit disputes on your credit report when you apply for a mortgage.  That’s what rapid rescoring services do — they resolve disputes and clean your credit report.

Note that rapid rescorers are not credit repair companies.

Most folks have heard of credit repair and credit repair companies.

  • Many credit repair companies do have bad reputations.
  • The credit repair business is not regulated like the mortgage industry and you can get burned by hiring the wrong credit repair company.
  • Credit repair companies do need a bond and business license to operate, but individuals do not need a special license or certification to be credit repair specialists.

Be careful out there. It’s best to let your mortgage lender advise you about credit repair services.

How Do Credit Repair Companies Charge Consumers?

There are rules and regulations on how credit repair companies can charge depending on the state in which they operate. In general, credit repair companies cannot charge upfront fees. Unfortunately, many credit repair companies ignore this law and charge consumers.

A credit repair company can charge an initial nominal processing fee. However, it cannot charge consumers for the services in advance. Attorneys, however, can legally charge a retainer upfront.

Credit repair companies can charge a monthly fee for work as they perform it. No credit repair company or credit consultant can guarantee the deletion of a specific item.

Credit consultants cannot charge for unsuccessful attempts at deletion.

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Can Bankruptcies and Foreclosures Be Deleted From Credit Report?

In some instances, bankruptcies, foreclosures, deeds in lieu of foreclosure, and short sales can be deleted from a person’s credit report. Your efforts are most likely to succeed if the entry is in error or it’s been more than seven years (Chapter 13) or ten years (Chapter 7) since the filing date.

Child support delinquencies can be deleted if you can prove that the child support payments are not in arrears. Public records come directly from the court system.

Bankruptcy and Foreclosure Waiting Period

Can I Qualify For Mortgage After Deleting My Bankruptcy And Foreclosure From My Credit Report Without The Waiting Period?

In some cases, consumers can get bankruptcies, foreclosures, deeds in lieu of foreclosure, and short sales removed from their credit report.

It’s highly possible to remove derogatory credit tradelines from credit reports:

  • bankruptcies
  • foreclosures
  • deed in lieu of foreclosure
  • short sales
  • judgments
  • delinquent federal student loans
  • tax liens

Unfortunately, having a legitimate bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale removed from a credit report does not exempt you from the mandatory waiting period after a foreclosure, deed in lieu of foreclosure, short sale, or bankruptcy.

Public Records Deletions 

Lenders will find out deleted public records when they do a national third-party public records search.

Any deletions of late payments, collections, repossessions, charged-off accounts cannot be discovered by lenders. However, lenders can discover public records deleted from credit reports with third-party national public records search through Data Verify or Lexis Nexis.

Here are examples of public records:

  • Bankruptcies
  • Foreclosures
  • Deed in  lieu of foreclosure
  • Short sales
  • Tax liens
  • Judgments
  • Delinquent federal student loans
  • Child support and/or other court-ordered payments

Automated Underwriting System (AUS)

More than likely, borrowers will get an approve/eligible per DU FINDINGS or LP FINDINGS after deletions of public records because Fannie Mae’s and/or Freddie Mac’s AUS will only “see” items listed on the credit report.

The chances are that mortgage lender will also not pick it up until the lender runs a national public records search. However, when you complete your mortgage application, you must answer the following:

  • Have you filed for bankruptcy in the past 10 years?
  • Have you had a foreclosure, deed in lieu of foreclosure?
  • Do you have any outstanding judgments?

It’s illegal to lie on a mortgage application.  No mortgage in the world is worth the consequences of getting investigated, charged, and convicted of mortgage fraud.

How To Increase Credit Scores 

The three major credit bureaus; Transunion, Equifax, and Experian; do make many errors with consumer credit reports.

  • Federal laws mandate that credit reporting agencies remove inaccurate information.
  • Contact the three major credit reporting agencies and/or creditors via certified mail with a letter and supporting facts.

Do not dispute derogatory credit items during the mortgage process. Take your proof to your lender and let them get a rapid rescore.

Deleting Accurate Derogatory Information

Many folks with prior bad credit also try to delete accurate derogatory information from their credit report. This method is how most credit repair companies try to attempt to remove derogatory information.

If the derogatory entry contains an error such as the wrong amount, the wrong date, duplicates, or other technicalities, you can attempt to remove the derogatory credit item. Contact the credit bureau(s) reporting the information and state that the item does not belong to you and for them to prove that the derogatory item is valid. The credit bureaus in turn will contact the reporting creditor and request evidence validating the derogatory item and the creditor has 30 days to do so.

If the reporting creditor has no proof or if they do not respond to the three credit bureaus, then the credit reporting agencies must delete the disputed item.

Disputing Items With Credit Balances

How To Increase Credit Scores To Qualify Mortgage

Mortgage lenders do not allow pending disputes on any item with an aggregate $1,000 credit balance that is non-medical during the mortgage process:

  • You can have open credit disputes if they are medical.
  • You can dispute items with zero balance and/or collection accounts.
  • Otherwise, you must retract the credit dispute and have a rapid rescorer correct your report.
  • Unfortunately, if you retract a credit dispute without correcting the item, it lowers your credit scores.

I recently had a mortgage loan applicant retract a credit dispute. Her credit score was 586. After the credit dispute retraction, her credit scores have dropped to 525. She could no longer qualify for a mortgage.

Fastest Way to Increase Credit Scores To Qualify Mortgage

You do not need to hire an expensive credit repair company to qualify for a mortgage.  Borrowers who need to qualify for a mortgage with a direct lender with no mortgage overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] We are available 7 days a week, evenings, weekends, and holidays.

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