Tips On How To Improve Credit Scores To Qualify For Mortgage

This BLOG On Tips On How To Improve Credit Scores To Qualify For Mortgage Was UPDATED On June 21, 2017

There are minimum credit score requirements to qualify for home loans.

Mortgage Lenders will evaluate the following when reviewing credit on a mortgage loan applicant:

  • Credit Scores
  • Credit Payment History On Credit Report

Many home buyers with prior bad credit can qualify for a mortgage as long as they meet the minimum credit score requirements and has been timely on all of their payments in the past 12 months.

Ways On How To Improve Credit Scores To Qualify For Mortgage

Credit Scores fluctuate month to month, especially with consumers with revolving debt. Consumers with high balances on their credit cards will have lower credit scores. However, if they pay down their credit cards to under 10% balance of their credit limit, they will have maximum credit score optimization. It is best to pay down all credit card balances to under 10% but not have a zero balance prior to applying for a mortgage.

  • A low credit score can be a hurdle when it comes to getting a mortgage loan approval. 
  • There are very simple ways to improve credit scores without much effort. 
  • For those who have no credit or did not have active in the past two or three years, best way to boost credit scores is to establish credit with at least three creditors that report payment history to the three major credit bureaus: TransUnion, Equifax, and Experian. 
  • Credit cards, automobile loans, mortgages, and other installment loans all post on credit reports.

Small Credit Balance Maximizes Credit Scores

  • Consumers with credit cards should pay down the balances to 10% of the credit limit.
  • For example, if the balance on credit card is $900 on a credit limit of $1,000, paying the balance down to under $100 but greater than zero will optimize credit scores. 
  • This will boost credit scores substantially. 
  • Paying down balances on credit cards can boost credit scores by 50 to 100 points instantly.

Monitor Credit Report For Accuracy And Errors

Credit Disputes are not allowed during mortgage process with the exception of medical collections and non-medical collections with zero balances.

  • If there are errors on credit report, it should be done way in advance before applying for mortgage.
  • If there are errors on credit report and the mortgage process cannot be stalled, then do not dispute any creditors until you talked to a loan officer.
  • The loan officer can do a rapid rescore as long as the borrower has proof that the credit report is incorrect with errors or credit card balances has been paid down but not yet reported.

Credit Disputes To Improve Credit Scores To Qualify For Mortgage

  • Consumers who dispute a negative item, credit reporting agency contacts the creditor and request verification.
  • If the creditor does not respond to the credit reporting agency within 30 days of a consumer dispute, the credit reporting agency must delete the negative item from your credit report. 

Will Deleting Derogatory Help Improve Credit Scores To Qualify For Mortgage?

Recent derogatory items reported on credit report will drop credit scores. However, older negative items that are over 2 years old has little to no effect on credit scores. Under HUD Guidelines, FHA borrowers do not have to pay off outstanding collections and charge off accounts to qualify for FHA Loans.

  • Credit Repair is not recommended during mortgage process.
  • Consumers who want to pay off outstanding collections, contact creditors or collection agencies directly.
  • See what they offer and counter offer them back, hopefully pennies on the dollar but make sure that part of the negotiation is that they need to remove the negative item from credit report or else tell them there is no deal. 
  • This is called pay for delete.
  • Most creditors or collection agencies will remove the negative item as part of the negotiation.  Make sure that everything in writing. 
  • Deleting recent collections can improve credit scores.

Provide Proof When Disputing Credit

  • If your creditor verifies that a derogatory credit item is valid, the item will remain on credit report. 
  • Credit Bureaus need to remove derogatory credit or credit in dispute if creditors or collection agencies who do not validate the debt in dispute within 30 days. 

Monitor Credit Report 3 Times A Year

  • Always check for errors on credit report. 
  • Statistics show that more than a third of all credit reports contain errors. 
  • These errors will cost consumers in paying higher interest rates and might even cause employment opportunities and/or promotions since a large percentage of employers run credit background checks as part of their hiring process.

Rebuild And Re-establish Credit With Secured Credit Cards

  • Consumers who do not have credit or did not have credit for several years, can start establishing credit with secured credit cards with a minimum $500 balances.
  • 3 Secured Credit Cards is recommended.
  • Each one of those secured credit cards can boost credit scores by 20 to 50 points. 
  • Make sure all of monthly bills are paid on time.

For more information on how to improve credit to qualify for mortgage or need to get qualified for a mortgage, please contact Gustan Cho at 800-900-8569 or email us at gcho@gustancho.com.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

Comments are closed.