This Article On My Re-Establishing Credit For Home Purchase And Qualifying For Mortgage Was PUBLISHED On May 7th, 2020

Getting My Credit Back In Order: Re-Establishing Credit For Home Purchase            

If you have read my previous articles with regards to my financial situations and credit, you will see that I have definitely had my ups and downs with regards to finances and my credit.  I am far from the “perfect” or even the “above average” credit score, but I have grown to expect this given what has happened in my life.

In a nutshell, here is how it goes:

Purchased home in September 2007 :

• Credit Score 730 FICO

Declared Bankruptcy / Foreclosure 2010:

• • Credit Score 570 FICO

Current: Credit Score 683 FICO

Now it isn’t all doom and gloom with regards to my credit.

• Things happen for a reason, and after it did, I had to move on with my life and make smart decisions going forward in order to build my credit score back up
• Credit scores in today’s society are everything and extremely valuable
• This score will ensure that you get the best borrowing rate possible so obviously the higher you can get it, the better

In this article, we will discuss and cover Re-Establishing Credit For Home Purchase And Qualifying For Mortgage.

Re-Establishing Credit For Home Purchase With Low Credit Scores

As I expressed in the points above, at my lowest I was at a 570 score.

• This was the low of the low as I had a bankruptcy and foreclosure on my record (which can stay on record for up to 10 years), as well as credit card and vehicle loans removed as well
• I paid the ultimate price for what I did and now I had a large hole to dig myself out of
• I was asking myself, how am I ever going to get my score back to something respectable? 
• The answer didn’t take too long to show up at my door

I received a credit card application in the mail and I bet you are wondering how I got this after just getting credit card debt remove via bankruptcy?

Re-Establishing Credit For Home Purchase And Using Credit Cards

Well, the answer is simple:

• Credit card companies know you can’t declare Chapter 7 Bankruptcy again for another 8 years so by hook or crook, customers will be stuck with the debt they choose to take on during the time frame
• Well after applying for the card, it was mine and soon I was back to using credit cards again
• This time around I only spent what I knew I could pay off and made sure I paid it off monthly so I can start building up some positive payment history again
• The next thing that I did was in 2012 I leased a new car with a cosigner so once again I was making timely payments on a monthly basis and getting that positive credit history built up
• The big step came in 2014 when I purchased my home through the FHA Back to Work program
• I had 650 credit score at the time and I had no issues securing this loan all by myself

After I made all 36 payments on my lease, I returned the vehicle and went to a different dealer where I purchased our family a minivan and financed it without a cosigner and obtained a used car loan at 3.24%.

Home Purchase With Credit After Bankruptcy

I came a long way from damaged credit to where I am today so I can speak from experience when I say that it is a tough uphill battle to climb.

• Be warned that you will get rejected along the way, as few people will want to extend you credit shortly after a bankruptcy/foreclosure
• However, if you take baby steps, you will build that credit back up again
• It isn’t the end of the world to have damaged credit, in fact it is way more normal than you think
• Some people just run into circumstances where hitting the reset button so to speak is the best path for them
• This isn’t a “Get out of Jail Free” card as you need to change your habits once receiving this break in your life
• Use these lessons to make smarter financial decisions in the future
• There is no doubt in my mind that in the coming years I will be back up over 700 yet again

But to this day I am still thinking about every choice and decision I make on a daily basis.

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 1-800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.