This BLOG On Secured Credit Cards To Improve Credit Scores For Mortgage Was UPDATED And PUBLISHED On September 1st, 2020
Having no credit can translate into low credit scores.
- Many Americans are puzzled why they have such poor credit scores year after year when they work very hard and pay their bills on time
- Having active credit tradelines is key to having higher credit scores
- Consumers who have no derogatory credit items reporting on their credit report can still have low credit scores if they do not have active credit tradelines
- There are minimum credit score requirements to qualify for home loans
In this article, we will cover and discuss Secured Credit Cards To Improve Credit Scores For Mortgage.
Importance Of Credit Tradelines
Many lenders require a minimum amount of credit tradelines as part of their lender overlays:
- Credit tradelines are credit items that are on consumer credit reports that have been seasoned at least 12 months
- There are many home buyers who meet down payment requirements on a home purchase
- They have a stable income and can afford to purchase a home
- They can afford the monthly housing payments
- However, do not qualify for a mortgage due to not meeting the minimum credit score requirements
For home buyers with lower credit scores and who do not meet the minimum credit score requirements can get three to five Secured Credit Cards To Improve Credit Scores For Mortgage.
Can I Qualify For Home Loan With Bad Credit?
There are two aspects of a consumer credit report lenders will look at when qualifying for a home loan with bad credit:
- Borrower’s credit scores
- Borrower’s credit report and overall payment history
- Special emphasis will be placed on the borrower’s payment history of the past 12 months
- Special emphasis will be placed on the borrower’s payment history after bankruptcy and/or foreclosure
Homebuyers can qualify for a home loan with bad credit.
- HUD Guidelines are very lenient when it comes for qualification requirement on FHA Loans
- HUD is the parent of the Federal Housing Administration (FHA)
FHA Loans are the best loan programs for first time home buyers and buyers with bad credit and lower credit scores.
FHA Loans For First Time Home Buyers And Borrowers With Bad Credit
Here are some aspects of FHA Loans:
- Minimum credit score requirements are 580 FICO for FHA Loans for 3.5% down payment home purchase loans
- Homebuyers with credit scores under 580 FICO and down to 500 can qualify for FHA Loans with 10% down payment
Consumers do not have to pay off the outstanding collection and charge off accounts to qualify for FHA Loans.
Traditional Versus Non-Traditional Credit Tradelines
There are two types of credit tradelines:
- Traditional Credit Tradelines
- Non-Traditional Credit Tradelines
Traditional Credit Tradelines are creditors who report the consumer payment history to all three credit bureaus.
What Are Non-Traditional Credit Tradelines
Here are examples of traditional credit tradelines:
- Auto Loans
- Revolving credit card debts such as credit cards
- Installment debts such as student loans
Any other creditor that reports the consumer payment history on credit bureaus.
Non-Traditional Versus Traditional Credit Tradelines
Non-Traditional Credit Tradelines are creditors who do not report the consumer payment history to all three credit bureaus.
Here are examples of non-traditional credit tradelines:
- Rent Payments
- Cell phone bill
- Cable bills
- Insurance payments
- Other monthly creditors that do not report on the consumer credit report
Credit scores are derived by the creditor reporting credit payment history to the three credit bureaus.
The Three Credit Bureaus Are:
Using Secured Credit Cards To Improve Credit Scores For Mortgage Is Easiest And Fastest Way To Increase Scores
Homebuyers who have low credit scores and want to establish and boost their credit to qualify for a mortgage should start to establish credit.
- The best and quickest way for you to establish credit is by getting a few secured credit cards
- A secured credit card is like a normal unsecured credit card:
- But the credit card company requires to a deposit
For example, consumers can open up a $500 credit limit account with a secured credit card company by making a $500 deposit:
- The secured credit card company will issue a credit line of up to $500
- Secured credit card companies will report the credit card holder’s payment history to all three major credit bureaus, including late payments
How To Apply For Secured Credit Cards To Improve Credit Scores For Mortgage
The secured credit card company will charge you a nominal application fee and will charge you interest on the balance on the credit card every month.
- When consumers get a secured credit card, make sure to always leave a $10 balance on credit card balance every month
- Having a zero balance on secured credit cards will not maximize credit scores but leaving a small balance will
Never maximize secure credit card because the available credit available is another factor of maximizing credit scores.
How Many Secured Credit Cards Is Recommended?
Try to get 3 secured credit cards with $500 credit limits.
- Each secured credit card should boost credit scores by at least 20 to 30 FICO points
- Consumers who recently went through a bankruptcy or foreclosure can easily get credit scores to increase over 100 points in a period of six to twelve months
- This is done by getting three secured credit cards and having the credit card balances low
When applying for secured credit cards, make certain that the credit card providers report the credit card holder payment history to all three credit reporting agencies.