Advice On How To Improve And Raise Credit Score To Qualify For Mortgage

Raise Credit Score To Qualify For Mortgage

Most of us, at some time or another, have done something to adversely affect their credit rating, and many times did not realize of the negative impact. One late payment reporting on credit bureaus can plummet one’s credit score by 50 FICO points or more. Other common mistakes made by consumers is when an annual credit card payment fee is due and the minimum $5 dollar payment for the month is not paid. The credit card company will report them as 30 days late. Any derogatory reported item on a credit report remains for seven years. Here are some examples and scenarios where consumer’s get bad credit:

  • Loss of job or periods of unemployment
  • Loss of business due to mismanagement and/or bad economy
  • Divorce

A person’s credit plays a key role in being able to qualify for mortgage. Those with bad credit may need to improve and raise credit score to qualify for mortgage.

Pre-Approval

The first person a home buyer needs to consult with when starting the home buying process is a loan officer. Without a pre-approval, most cannot shop for homes and for sure cannot submit a real estate purchase offer. The pre-approval letter is needed by a loan officer. In order for the loan officer to issue a solid pre-approval letter, the borrower needs to credit qualify. Borrowers needs to meet minimum credit score requirements to qualify for mortgage. Those who have lower scores may need to raise credit score to qualify for mortgage.

Credit Bureaus

There are three major credit reporting agencies:

  • Experian
  • Equifax
  • Trans Union

Consumer credit scores ranges between 300 to 850. Lenders have minimum credit score requirements that borrowers needs to meet. If borrowers do not quite qualify, there are ways on how to raise credit score to qualify for mortgage.

When you’re in the market to buy a home and discover that you have bad credit and your score is low, don’t despair. Although it may delay the purchase of your home, there are ways to repair your bad credit rating so that you may still qualify for a home mortgage with a decent interest rate.

  • To evaluate your credit rating you’ll need to obtain copies of your credit reports from the various agencies. Examine them carefully to see what transactions are lowering your score.

A note about bankruptcies: A bankruptcy can lower your credit score by 200 points or more. Repairing bad credit following a bankruptcy is beyond the scope of this article.

  • Charge-Offs: Charge-offs appear on your credit report if a creditor has given up trying to collect from you and ends up writing off the amount you owe as a bad debt. Charge-offs are one of the main reasons why loan applicants are denied credit.

How to Repair It: If you have any charge-offs, contact those creditors immediately and make arrangements to pay off the old debt. After a few months of regular payments, or if you repay a charge-off debt in full, submit a written request to that creditor to change the status on your credit reports.

Late Payments: Late payments may be handled differently depending on whether they are isolated incidents or recurring problems.

How to Repair It: If you have a single late payment listed on your credit report, the best thing to do is contact your creditors by phone to discuss the situation. Follow the conversation with a written request to have the isolated late payments removed from your reports. If you’re consistently late with payments, however, repairing the problem is a little more involved. You’ll need to begin by setting a pattern of paying on time over several months. Once this positive pattern is established, call your creditors (and follow-up in writing) and let them know that you’re back on track. With persistence and patience, you may be able to delete these score-lowering marks.

Reporting Mistakes: Sometimes, creditors just make mistakes when reporting to the bureaus. Such mistakes might include charge disputes that resulted in an initial late payment that was eventually reversed. Unfortunately, it’s the individual’s responsibility to spot – and repair – reporting mistakes that lead to bad credit.

How to Repair It: Once again, contact your creditor by phone and follow up with a written request that the mistake be corrected. Because the Fair Credit Reporting Act (FCRA) requires that credit agencies and their information providers investigate reports of inaccuracies, you’ll also want to contact the CRA directly to report the discrepancy.

Ways To Raise Credit Score To Qualify For Mortgage

There are several ways to raise credit score to qualify for mortgage:

  • No credit means low credit so make sure to have three to five revolving accounts that report to all credit bureaus
  • Consumers should make sure that they have lower balances on their revolving accounts
  • Avoid applying for new credit all at the same time because hard inquiries will drop scores

If, after all your work, you still score below the 620 mark, it doesn’t mean that you won’t qualify for a home loan. It may mean, however, that your mortgage will take longer to process and the terms and interest rate may not be as good as you were hoping for. Talk to your real estate agent about referrals to high-risk lenders.

Repairing bad credit can take many months to a year or more. But when you’re ready to buy a home, you’ll be glad you took the time to improve your score – and your mortgage payment will be lower because of your efforts.

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.