How Mortgage Underwriters View Negative Credit History

How Mortgage Underwriters View Negative Credit History: 2025 Guide

Buying a home with a negative credit history may feel impossible, but it’s not. At Gustan Cho Associates, we help people who have gone through tough times get approved for a mortgage every day—even with collections, charge-offs, or past bankruptcies. If you’ve had financial problems but are now back on your feet, this guide is for you.

In this 2025 guide, we’ll explain how underwriters look at negative credit history, what they care about most, and how you can still qualify for a mortgage. Let’s break it down in simple terms.

What Is Negative Credit History?

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Negative credit history refers to instances where an individual struggles to pay bills on time or manage debt, which can significantly impact a credit report. This type of history is reflected through various marks, including late payments, collections, charge-offs, judgments, tax liens, bankruptcy, and foreclosure. These negative indicators can diminish a credit score and create apprehension among lenders. However, it’s important to note that having a negative credit history does not necessarily preclude someone from buying a home.

How Underwriters View Negative Credit History

Underwriters don’t just look at your credit score. They look at the story behind your credit. You may still qualify if your bad credit was due to job loss, illness, divorce, or other hardship—and you’ve recovered.

What matters most to mortgage underwriters:

1. The reason for the negative credit history
2. Whether it’s in the past
3. If you’ve re-established credit since then
4. If you have the ability to repay now

Lenders expect borrowers to go through hard times. What they don’t want to see is someone who had credit problems and never got back on track. That’s the difference.

Bad Credit After Bankruptcy or Foreclosure

This is important: Late payments after a bankruptcy, foreclosure, or short sale are a big red flag. Lenders call these “second offenders.”

If you went through bankruptcy but are now paying everything on time, you’re showing you learned from the past.

Suppose you filed for bankruptcy but still have recent late payments. In that case, underwriters will see this as a pattern of financial irresponsibility—and you may have a harder time getting approved.

What’s the Difference Between Credit Score vs. Credit Report?

Your credit score is a number based on what’s in your credit report.

Your credit report shows your actual credit history:

• How much you owe
• How often you pay on time
• How long you’ve had accounts
• Any collections or judgments

Even if your score is low, underwriters might approve your loan if your recent history looks strong. That’s why rebuilding after a negative credit history is so important.

Can You Get a Mortgage With a Negative Credit History?

Yes, you can—especially with lenders like Gustan Cho Associates who offer loans with no overlays. We approve borrowers based on agency guidelines, not extra rules that other banks add.

For example:

• Collections and charge-offs do not have to be paid to qualify for FHA or VA loans.
• You can qualify with credit scores as low as 500.
• We accept borrowers recently out of bankruptcy or foreclosure, as long as they meet the waiting period rules and show they’ve re-established credit.

What Underwriters Like to See After Bad Credit

Underwriters want to see:

1. Re-established Credit: To rebuild credit, you can use secured credit cards. These cards are meant for people who want to improve their credit history. Maintaining low balances on these cards is essential, as it demonstrates responsible credit usage. Additionally, consistently making on-time payments is crucial for improving credit scores and fostering a positive credit profile over time.
2. New Credit Accounts: When it comes to establishing new credit accounts, options like auto loans or small installment loans can be beneficial. Additionally, department store cards are also acceptable choices for building your credit profile.
3. No New Late Payments: Keep paying everything on time after the hardship period.
4. Stable Income: Underwriters must confirm you can afford the mortgage today.

Real-Life Example: Rebounding After Hardship

Case 1

Jane had perfect credit for 5 years. Then she got divorced, lost her job, and missed several payments. She filed for bankruptcy in year 6.

From year 7 onward, she got 3 secured credit cards and a car loan and kept every payment on time. Today, her credit score is 610. She’s back on track and got approved for an FHA loan with Gustan Cho Associates.

Case 2

Tom has had late payments and collections for 10 years. No bankruptcy, no major hardship, no recent positive credit.

Even though he never filed for bankruptcy, underwriters see him as a higher risk because he has never shown that he can handle credit responsibly.

How To Fix Negative Credit History

You can fix your negative credit history, but it takes time and consistency. Here’s how:

1. Get 3 to 5 secured credit cards: To build your credit, it’s advisable to obtain three to five secured credit cards, each with credit limits ranging from $300 to $500. Use these cards each month and ensure that your balances are paid on time. This consistent usage and timely payments will help strengthen your credit profile.

2. Keep Balances Low: If you want to keep your credit score in good shape, it’s smart to keep your balances low—try to stick to using less than 30% of your credit limit. So, if your limit is $500, aim to keep your balance under $150. Doing this shows that you’re using credit responsibly, which can help your financial situation.

3. Never Pay Late: Even one 30-day late payment can hurt you

4. Add New Credit Slowly: After a year, apply for an unsecured card or auto loan

5. Be Patient: Negative items can stick around on your credit report for up to 7 years, but don’t stress too much—they impact your score less and less as time goes on.

Does Bad Credit Affect More Than Just Loans?

Yes. Negative credit history can also impact:

• Car insurance premiums
• Job applications (especially in finance, government, or positions of trust)
• Security clearances
• Professional licensing (loan officers, real estate agents, etc.)

That’s why working to rebuild your credit is so important—even if you’re not buying a home yet.

Why Choose Gustan Cho Associates?

We specialize in helping people with a negative credit history. Other lenders may turn you down because of overlays or outdated credit policies.

Here’s what sets us apart:

• No lender overlays on FHA, VA, USDA, and Conventional loans
• Manual underwriting allowed for borrowers with recent credit challenges
• Credit scores down to 500 are accepted
• Fast closings even with complex credit issues

If you’ve been told “no” before, we may be able to say “yes.

Final Thoughts: Turning Negative Credit History Into a Mortgage Approval

A negative credit history does not mean your dream of homeownership is over. What matters most is what you do after the hardship.

Rebuild. Show lenders that you’ve learned and improved. Focus on on-time payments, small credit accounts, and stable income.

At Gustan Cho Associates, we believe in second chances. If you’re ready to turn your past into a fresh start, we’re here to help you every step of the way.

Ready To Get Started?

Let us help you get pre-approved for a mortgage—even with a negative credit history. Call us at 800-900-8569, text us for faster response, or email us at gcho@gustancho.com. We’re licensed in 50 states and ready to work with you. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.

Negative credit history doesn’t define you. Let’s build your path to homeownership together.

Frequently Asked Questions About Negative Credit History:

Q: What is Considered a Negative Credit History?

A: A negative credit history means you’ve had problems paying your bills on time. It includes late payments, collections, charge-offs, bankruptcies, or foreclosures.

Q: Can I Still Get a Mortgage if I have a Negative Credit History?

A: Yes, you can. At Gustan Cho Associates, we work with people with negative credit histories every day. If you’ve had tough times but are back on track, we may still be able to help you get approved.

Q: Do I Need to Pay Off Collections to Qualify for a Mortgage with Negative Credit History?

A: No. You do not need to pay off collections or charge-offs to qualify for an FHA or VA loan. What matters more is that you’re now making timely payments and rebuilding credit.

Q: How do Mortgage Underwriters Look at Negative Credit History?

A: Underwriters look at the full story—not just your credit score. They want to know why you had credit issues, how long ago it was, and if you’ve tried fixing your negative credit history since then.

Q: What if I had Late Payments After Bankruptcy or Foreclosure?

A: Late payments after bankruptcy or foreclosure are a big red flag. Lenders see this as a pattern of poor credit behavior. Getting approved is harder if your negative credit history continues after a major event.

Q: What’s the Best Way to Fix a Negative Credit History?

A: Start by getting 3 to 5 secured credit cards, keep balances low, pay everything on time, and slowly add new accounts. Be patient—negative marks lose their impact over time if you stay on track.

Q: How Long does a Negative Credit History Stay on My Report?

A: Most negative items remain on your credit report for as long as 7 years. However, as you establish new positive credit, those older items become less significant, improving your score.

Q: Will a Negative Credit History Affect Things Other Than Getting a Mortgage?

A: Yes. It can also increase your car insurance rates, hurt your chances of getting certain jobs, and even prevent you from getting licensed in some fields like real estate or finance.

Q: What do Lenders Want to See after Negative Credit History?

A: Lenders want to see that you’re now financially stable. They look for re-established credit, no new late payments, and proof that you can afford the mortgage today.

Q: Why Should I Work with Gustan Cho Associates if I have a Negative Credit History?

A: Because we don’t have overlays. We follow standard loan rules without adding stricter ones. We approve credit scores down to 500 and help borrowers with past financial struggles qualify for a mortgage.

This blog about “How Mortgage Underwriters View Negative Credit History” was updated on July 23rd, 2025.