Using Secured Credit Cards To Improve Credit Scores For Mortgage

This BLOG On Using Secured Credit Cards To Improve Credit Scores For Mortgage Was UPDATED On May 25th, 2017

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.
  • Many lenders require minimum amount of credit tradelines as part of their lender overlays.
  • Credit tradelines are credit items that is on consumer credit reports that has been seasoned at least 12 months.
  • There are many home buyers with the down payment requirements on a home purchase and stable income who can afford to purchase a home and afford the monthly housing payments, however, do not qualify for a mortgage due to not meeting the minimum credit score requirements for a home mortgage.
  • 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 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

Home buyers can qualify for 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.

Here are some aspects of FHA Loans:

  • Minimum credit score requirements is 580 FICO for FHA Loans for 3.5% down payment home purchase loans.
  • Home buyers 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 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.

Here are examples of traditional credit tradelines:

  • Mortgages
  • 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 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
  • Utilities
  • Cell phone bill
  • Cable bills
  • Insurance payments
  • Other monthly creditor that does not report on consumer credit report

Credit scores are derived by the creditor reporting credit payment history to the three credit bureaus.

The Three Credit Bureaus Are:

  • Experian
  • Equifax
  • Transunion

Using Secured Credit Cards To Improve Credit Scores For Mortgage Is Easiest And Fastest Way To Increase Scores

Home buyers who have low credit scores and want to establish and boost their credit to qualify for 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 card 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 increase over 100 points in a period of six to twelve months by getting three secured credit cards and having the credit card balances low. 
  • When applying for secured credit cards, make certain that credit card provider report the credit card holder payment history to all three credit reporting agencies.
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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