Re-Establishing Credit By Adding New Credit For Mortgage
This BLOG On Re-Establishing Credit By Adding New Credit For Mortgage Was UPDATED On January 6th, 2019
Home Buyers can qualify for home loans with bad credit.
- FHA Loans are the most popular loan program for borrowers with bad credit and higher debt to income ratios
- Under HUD guidelines, borrowers do not have to pay outstanding collections and charged-off accounts to qualify for FHA Loans
- However, lenders do want to see re-established credit after periods of bad credit
- Also, to get an approve/eligible per Automated Underwriting System, borrowers need to have been timely with all of their debt obligations that report on the credit report for the past 12 months
- Re-Establishing Credit By Adding New Credit is the best way to qualify for FHA Loans
In this article, we will cover and discuss Re-Establishing Credit By Adding New Credit For Mortgage.
Credit Repair Versus Re-Establishing Credit
Credit repair is the task of removing derogatory, negative, and/or inaccurate information from the credit reports by credit dispute.
- There is a big difference between credit repair and re-establishing credit
- Re-Establishing Credit By Adding New Credit is the best way to get ready to qualify for a mortgage
Credit Repair and Re-Establishing Credit By Adding New Credit can be done at the same time.
- The older negative credit items are the less impact it has on credit scores
- Removing old negative items will not necessarily improve credit scores
- But credit report will look cleaner and will give creditors a better first impression
Credit repair can boost credit scores if a recent negative or inaccurate item falls off the credit report.
Secured Credit Cards In Re-Establishing Credit
Re-Establishing Credit By Adding New Credit with secured credit cards is the easiest and quickest way of improving credit scores.
- Lenders want to see re-established credit for at least a year for them to feel comfortable in approving a mortgage loan
- Lenders do not want to see any late payments after a bankruptcy and/or foreclosure
- Most lenders will have credit tradeline requirements as part of their lender overlays
- Lenders will require a minimum of three re-established credit items on credit report for mortgage loan approval as part of their overlays
- Credit Tradelines requirements are lender overlays
Gustan Cho Associates does not have any overlays and just go off Automated Underwriting System findings.
Re-Establishing After Bankruptcy
A bankruptcy can plummet credit scores by 200 points or more. Foreclosures, Deed In Lieu Of Foreclosures, and Short Sales can drop scores by 150 points or more.
- So how does one go about Re-Establishing Credit By Adding New Credit after filing bankruptcy or foreclosure?
- It is extremely difficult to get new credit when scores are below 600 FICO
- The chances are that credit scores will be below 500 FICO after bankruptcy or foreclosure is reported to the three major credit reporting agencies
- The best way for you to go about Re-Establishing Credit By Adding New Credit after a bankruptcy or foreclosure is to get 3 to 5 secured credit cards
Each secured credit card should have a $500 credit limit for maximum effect.
Power Of Secured Credit Cards
Each secured credit card will boost credit scores by at least 20 points or more depending on the borrower.
- Secured Credit Cards are just like unsecured cards and report on credit bureaus
- The only difference with secured credit cards is that the cardholder needs to put a deposit
- The secured credit card company will issue a line of credit on the card equivalent to the amount of deposit
- Secured Card Companies will report the consumer payment history on all credit reporting agencies
Any payment 30 days late will be reported as a late payment.
Increasing Credit Limits On Secured Credit Cards Boosts Scores
As the secured card ages, the secured card company will increase credit limit without the cardholder putting any more deposit.
- With regular use of secured credit cards, credit scores will improve because part of the credit score calculations is the length of credit history
- Another good news is that credit scores will slowly, but surely, increase as bankruptcy or foreclosure ages
- Re-establishing credit is a long but rewarding process
- There are many cases where consumers have credit scores as high as 700 plus one-year after bankruptcy, short sale, deed in lieu, foreclosure with secured credit cards
Secured Credit Card companies will increase credit limit without cardholder putting any more deposit as the card ages with no late payments.
Late Payment On Credit Report
Never be late on any monthly credit payments while re-establishing credit and/or going through a credit repair program.
- One late payment will drop credit scores by at least 80 points
- Any payment that is not paid within 30 days of the due date is considered a late payment
- Late payments stay on credit report for 7 years
With the combination of credit repair and re-establishing credit, consumers will be on the road to good credit in about a year.
Credit Disputes During The Mortgage Process
Credit Disputes are not allowed during the mortgage process.
- Medical Credit Disputes and non-medical credit disputes with zero balances are exempt
- Non-Medical collections credit disputes are exempt if the total outstanding balances is less than $1,000
- One cannot have credit disputes on charged off accounts in the mortgage process
- Retracting credit disputes will drop credit scores
- Reason credit disputes are not allowed is because the credit bureaus automatically discount the derogatory disputed item from the credit scoring formula
- So, if a consumer disputes a collection or charge-off account, the credit bureaus will disregard that negative scoring from the credit scoring model
- This makes consumer credit scores jump with disputes
- On the flip side, retracting credit disputes will put the derogatory item back on the credit scoring formula, therefore, dropping the credit scores
Whatever a credit repair company does, one can do it themselves. Contact us at Gustan Cho Associates Mortgage Group for free tips in re-establishing credit to qualify for a mortgage. Our team of mortgage professionals can be your one stop shop credit repair and credit consulting shop. We help consumers with many do-it-yourself information on credit repair and re-establishing your credit.
Qualifying For FHA Loans With Bad Credit
FHA Loans is the best mortgage loan program with home buyers with bad credit.
- Minimum credit scores required for 3.5% down payment FHA Loan is 580 FICO
- Outstanding Collections and Charge Off Accounts do not have to be paid to qualify for FHA Loans
- However, to get an approve/eligible per Automated Underwriting System borrowers to need to be timely in the past 12 months
- Two-year waiting period after Chapter 7 Bankruptcy discharged date to qualify for FHA Loans
- Mortgage loan applicants in a Chapter 13 Bankruptcy repayment plan can qualify for FHA Loans if they are one year into the Chapter 13 Bankruptcy
- There is no waiting period after Chapter 13 Bankruptcy discharged date
Mortgage Borrowers with any questions please contact us at Gustan Cho Associates at 1-262-716-8151 or text us for faster response. Or email us at [email protected] We are available 7 days a week, evenings, weekends, and holidays.