This BLOG On Lower Credit Card Balances Means Higher Credit Scores Was UPDATED On May 2nd, 2019
Did you realize that lower credit card balances means higher credit scores. Mortgage Guidelines dictate minimum credit score requirements to qualify for home loan programs. HUD, the parent of FHA, sets minimum credit score requirements of 580 for borrowers who need to qualify for 3.5% down payment FHA Loans. Fannie Mae and Freddie Mac require 620 minimum credit scores to qualify for Conventional Loans. Most Jumbo Mortgage Lenders will require a 700 credit score. Most banks will not approve any homeowner with less than a 700 credit score for HELOC. One of the biggest reasons why consumers have lower credit scores is due to high balances on their revolving accounts. Just by having lower credit card balances means higher credit scores. It is highly recommended that home buyers pay down their credit card balances prior to applying for a home mortgage. Higher credit scores means lower mortgage rates on home loans. Lenders view higher credit score borrowers as less risky borrowers.
- Borrowers with perfect credit with no late on any monthly payments with low credit scores need to see if they high balance on their credit cards
- Making all credit card payments as well as other monthly debt payments on time, a high balance on credit cards will definitely yield lower credit scores
- Bottom line is that lower credit card balances means higher credit scores
The Lower Credit Card Balances Means Higher Credit Scores
Consumers with $1,000 credit card who want to optimize credit score with that particular credit card, the key is to have the lowest possible balance but great than zero. Do not have a zero balance on credit card either. We will explain why. Always leave a balance of $10.00 on credit card and there is a valid reason for this.
Rebuild And Re-Establish Credit With Secured Credit Cards
Many consumers were affected by the financial meltdown with an outcome of bankruptcy, foreclosure, judgments, collections, late payments and/or tax liens.
- Consumers who had financial hardship may have credit scores drop in the low 500’s or even in the 400’s
- The best way to rebuild credit is by reestablishing credit immediately by adding positive credit tradelines
- The best and fastest method of re-establishing credit is by getting 3 secured credit cards
- Each credit card should boost credit scores by 20 to 50 points
- Minimum credit limit should not be less than $500
Role Of Credit Bureaus
When a credit reporting agency calculates scores, it uses a special formula.
- With credit cards, the lower a factor is the higher credit score is
- So, if a consumer has a $1,000 limit revolving limit with a balance of $900, the factor is 0.90
- This is a high number
- The higher the number, the worse consumer’s credit scores
- If a consumer had a balance of $100 with a $1,000 limit, the factor will be 10%, which is $100 dollars divided by $1,000 credit limit
- The lower the factor the higher the credit score
- Remember, lower credit card balances means higher credit scores
Credit Utilization Ratios
Consumers do not want to have a zero balance on their credit card if they want to optimize it to its fullest effect. That factor cannot be zero. The lower the factor is better but not zero. Consumers with a $0 balance on credit card, dividing $0 by $1,000 credit card limit, it will yield zero. Again, lower credit card balances means higher credit scores but the balance must be greater than zero.