Ways To Prepare Credit For Mortgage
If you are planning on applying for a home loan, you should consult a loan officer and see if you can prepare credit for mortgage. Your credit scores will determine whether or not you qualify for a home loan and the mortgage rate you will qualify for. Many consumers also have errors on their credit report and it takes time to correct errors from your credit report. If your credit scores are low, there are some quick fixes in boosting your credit scores quickly. Again everything takes time so instead of waiting at the last minute, you should consult with a loan officer and review your credit report and credit scores and see if there are ways to prepare credit for mortgage. Even if your credit scores are good, see if you can make them better with higher credit scores so you can get the best available mortgage rates. To get the best available mortgage rates, you need credit scores of 740 FICO or higher.
Credit Card Balances Affect Credit Scores
If you have your credit cards maxed out to the credit card limit, this will hurt your credit scores. You should have all of your credit card balances paid off at least two months before you are planning on applying for a mortgage loan. If you were to pay off your credit cards today in full, it will take a month or two for the credit bureaus to have your credit card balance information updated on your credit report. Once a mortgage lender pulls your credit, the credit scores on your credit report will be used throughout the mortgage application and mortgage approval process until you close on your home loan so it is to your best interest that you have zero balance on your credit cards because that will maximize your credit scores.
Do Not Pay Old Collection Accounts
You do not have to pay off unpaid collection accounts to qualify for a mortgage loan. Many home buyers or homeowners who need to refinance think that they cannot get a home loan with unpaid collection accounts. That is not true. If you pay off an old dormant collection account with an unpaid balance, your credit scores will drop. What happens is that the credit bureaus re-activates the old unpaid collection dormant account and reports it as a new collection account when they update the paid collection and this will plummet the credit scores of the borrower. If you need to pay off an old unpaid collection account, do so by negotiation of doing a pay for delete on the credit balance. What this means is that the creditor will delete the derogatory item off your credit report in lieu of payment or settlement.
Do Not Dispute Derogatory Item During Mortgage Process
Many people with bad credit hire credit repair companies or try to repair their credit on their own. The way credit repair works is by disputing derogatory information by writing to the credit bureaus and stating that the item is inaccurate or the derogatory item does not belong to them. The credit bureaus then contacts the creditor about getting validation to the claim and if the creditor does not respond back in 30 days, the credit bureaus need to remove the disputed credit items. Unfortunately, many times credit bureaus do not follow the federal law of deleting the unverified derogatory information and leave the dispute on the credit report. The derogatory item on the consumer’s credit report states item in dispute and consumer disagrees. What this statement on the credit report does is disqualifies a mortgage loan borrower from proceeding with the mortgage application and mortgage approval process until the credit disputes are fully retracted. Unfortunately, once the credit disputes are retracted, this causes the consumer’s credit scores to plummet where many times, I have seen a drop of 80 or more points when a dispute gets retracted.
Credit disputes on medical collection accounts are exempt and credit disputes on derogatory accounts with zero balances are exempt. Many times, mortgage lenders with overlays will request all disputes to be retracted.
What If I Have No Credit?
Having no credit is like having bad credit. Chances are if you have no active credit trade lines that your credit scores are low. If you have no credit or closed out all of your active credit accounts, get a few secured credit cards and start re-establishing your credit. You can also have your name added as an authorized user on a credit card account with someone with a low credit balance and good credit. Make sure that the person you request that you be added on as an authorized user is a responsible person with stellar credit. If the main borrower is late on their monthly payment, you will get dinged for that.
Do Not Apply For New Credit
You can apply for credit but do not apply for too much credit. Every time you apply for credit, a hard inquiry will drop your credit scores by 5 points. Too many inquiries are frowned upon by mortgage lenders.
Do Not Be Late On Payments
You can have prior bad credit and low credit scores and qualify for a mortgage loan. However, you cannot have recent late payments in the past 12 months and expect to get a home loan approval. Make sure that you are never late on the minimum payment due. Your past 12 months payment history will be carefully reviewed by mortgage underwriter.