Secured Credit Cards To Rebuild Credit After Bankruptcy And Foreclosure

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This Article Is About Secured Credit Cards To Rebuild Credit After Bankruptcy And Foreclosure

Credit cards to rebuild credit after bankruptcy and foreclosure is the most powerful way to re-establish credit to qualify for mortgages.

Let’s take a case study.

  • Say John Smith filed bankruptcy on January 20, 2015
  • His credit score has plummeted to 470 FICO after filing his bankruptcy
  • All of his credit cards were part of his bankruptcy and he has not applied for new credit since his bankruptcy
  • He also lost his home and was part of the personal bankruptcy he filed
  • All of his debts were discharged on July 20, 2015
  • His goal is to qualify for a home mortgage

Getting Ready To Qualify For Home Loans With Secured Credit Cards To Rebuild Credit

What are the HUD guidelines for qualifying for FHA loans with bad credit?

Fast forward to today, February 26, 2017, and his credit score are now 550 FICO.

  • The reason his scores are better now than it was after filing Chapter 7 bankruptcy is that a consumer’s credit scores increase with time
  • As time goes by, even though the consumer does not get new credit, the credit scores improve and the previous bad credit begin not to have an impact on their credit scores

The longer the date of the last activity of the derogatory credit tradeline, the less impact that derogatory item has on consumer credit scores.

HUD Guidelines To Qualify For FHA Loans With Bad Credit

FHA Loans are the best loan program for homebuyers who need to qualify for a home loan with bad credit.

Here are FHA Guidelines on qualifying for FHA Loans with bad credit:

  • Need 580 credit score to qualify for FHA Loan with 3.5% down payment
  • Borrowers do not have to pay off outstanding collections and charge off accounts to qualify for FHA Loans
  • Borrowers can qualify for FHA Loans with prior bad credit
  • But lenders want to see that FHA Borrowers has re-established credit and timely payments for the past 12 months
  • Borrowers under 580 FICO credit scores and down to 500 FICO can qualify for FHA Loans but need to put a 10% down payment

No late payments on any credit tradeline after bankruptcy and foreclosure.

Start Re-Establishing Credit After Bankruptcy And Foreclosure

Now John Smith has re-established his financial situation with a steady job and steady income stream, John can start re-establishing his credit to qualify for a mortgage.

  • Many consumers who went through bankruptcy and/or foreclosure want nothing to do with credit and want to pay everything with cash
  • By not getting new credit will hurt consumers and hurt their chances of qualifying for a home loan in the future
  • No matter how much consumers want to stay away from credit cards or other means of credit, they need to get credit to start developing new credit tradelines
  • John Smith has a great job making $80,000.00 per year with great benefits
  • Has over $15,000.00 in savings
  • He needs to purchase a car and has enough money to pay it in cash and wants to someday purchase a home and needs to qualify for a home mortgage

He knows that he will probably have problems financing due to his poor credit history and low credit scores.

Secured Credit Cards Is Fastest And Easiest Way Of Re-Establishing Credit

Are secured credit cards the quickest and easiest way to restore your loan

John Smith now needs to start rebuilding his credit and improve his credit scores.

  • The best and fastest way to boost your credit score is through secured credit cards
  • The key number of credit cards you should have is 3
  • John Smith should get 3 secured credit cards with $500.00 limits
  • You should leave a balance of about $10.00 every month on your credit card
  • Each secured credit card will boost John’s credit score by 30 points

If he has three $500.00 credit limit secured credit cards and leaves a $10.00 balance on each of the 3 credit cards, John Smith can easily boost his credit scores by 100 plus points if not more.

How Many Secured Credit Cards To Rebuild Credit Is Ideal?

Secured credit cards will expedite the improvement of John Smith’s credit scores.

  • If John has a 550 credit score, just by adding a $500 credit limit secured credit card can boost his credit to over 650 FICO in a matter of three to six months
  • If he has three secured credit cards to rebuild credit with each secured credit cards with $500 credit limits, his credit scores can be closer to 700 FICO in a matter of six months
  • After six months to one year, John can qualify for other credit such as unsecured credit cards, auto loans, installment loans, and mortgage loan
  • Even though John Smith can purchase his automobile with cash, he should finance part of it so he has an auto loan in his credit report and can develop an automobile credit history on his credit report 
  • Even though it costs him extra interest expense, it is well worth it since the auto loan credit history will probably boost his credit score by another 30 points or so
  • His 650 credit score will now jump to 680 FICO
  • John can now qualify for an unsecured credit card, a department store credit cards, and/or a gasoline credit card
  • He will also qualify home mortgage loan since he will meet the minimum credit score requirement and has established credit tradelines

Homebuyers who need to qualify for FHA Loans with bad credit or lower credit scores, contact us at Gustan Cho Associates 262-716-8151 or text us for a faster response. Homebuyers can also email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.