Re-Establishing Credit By Adding New Credit For Mortgage

This BLOG On Re-Establishing Credit By Adding New Credit For Mortgage Was UPDATED On August 14, 2017

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 FHA Guidelines, borrowers do not have to pay outstanding collections and charged off accounts to qualify for FHA Loans.
  • However, mortgage 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 credit report for past 12 months. 
  • Re-Establishing Credit By Adding New Credit is the best way to qualify for FHA Loans. 

Credit Repair Versus Re-Establishing Credit

Credit repair is the task of removing derogatory, negative, and/or inaccurate information from credit report 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 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.

  • Mortgage lenders want to see re-established credit for at least a year for them to feel comfortable in approving a mortgage loan. 
  • Mortgage lenders do not want to see any late payments after a bankruptcy and/or foreclosure.
  • Most of 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 lender overlays.
  • Credit Tradelines requirements are lender overlays.
  • The Gustan Cho Team does not have any overlays and just go off Automated Underwriting System findings.

Re-Establishing Credit By Adding New Credit 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 a 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 $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. 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 late payment.
  • Late payments stays 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 Mortgage Process

Credit Disputes are not allowed during 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. For online credit restoration advice, visit Credit Fix Advisors . Credit Fix Advisors is a one stop shop credit repair and credit consulting company where consumers can gather 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 need to be timely in 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 The Gustan Cho Team at USA Mortgage at 1-800-900-8569 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

Related> Re-establishing Credit After Bankruptcy

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.

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