Things To Avoid When Repairing Your Credit To Qualify For Mortgage

This BLOG On Things To Avoid When Repairing Your Credit To Qualify For Mortgage Was UPDATED On June 22, 2017

There are things to Things To Avoid When Repairing Your Credit To Qualify For Mortgage.

  • Mortgage Applicants need to realize that low credit scores mean higher mortgage interest rates.
  • Lenders view lower credit score borrowers as higher risk.
  • With higher risk, comes higher rewards.
  • Higher rewards for lenders means higher mortgage rates.

Reasons For Credit Score Decrease

There are obvious reasons why your credit scores drop.

  • Filing bankruptcy can plummet your credit scores by 100 points or more. 
  • A foreclosure can drop your credit scores by an equal amount. 
  • Late payments on a car loan, credit card, or installment loan can cost you 50 points or more on your credit score. 
  • Too many inquiries at the same time will also have a negative impact on your credit scores. 
  • There are things to avoid when repairing your credit that most people do not realize. 
  • They are little tasks that most people do not realize that actually can hurt your credit scores.

Things to avoid in Repairing your Credit to Boost your Credit Scores

One of the things to avoid when repairing your credit is to have zero balance on your credit cards every month.

  • Paying your credit card off every month and having a zero balance will not help your FICO credit score. 
  • It will not drop your score but it will not help you maximize your credit scores. 
  • The credit reporting agencies have formulas in calculating credit scores and if you have a zero credit balance on your credit card, that does not factor in to your credit spending ratio formula.

Credit Ratio

The credit spending ratio is the percentage of your credit card limit that is being used and counts 30% of your overall credit score.

The credit spending ratio formula is calculated as follows:

  • Find your credit card limit and your credit card balance from a recent credit card billing statement.
  • Then divide your credit card balance by your credit card limit.
  • You then multiply the number that you got from B by 100. 
  • The lower the number, the better it is.

Leaving a small balance on your credit card balance every month will maximize your credit scores when Repairing your Credit

By having a small number, the better.

  • Leaving a very small balance like $10 dollars will help you have a higher credit score.
  • Things to avoid when repairing your credit is by not having a zero balance. 
  • A zero balance will not help improve your credit and most people do not realize this. 
  • If you have a zero divided by whatever your credit card balance is, you get a zero.

High credit card balances will hurt your credit scores

Other things to avoid when repairing your credit is having high credit card balances.

  • As discussed on the previous paragraph, the amount you owe on your credit card and the available credit limit will determine 30% of your total credit score. 
  • If you max out your credit card balance limit, your credit spending ratio will have a higher number which will drop your credit scores. 
  • Remember that the credit spending ratio needs to be a low number but not zero.

Low credit spending ratio

Creditors and credit lenders consider consumers having a low credit spending ratio, normally 25% or less, to be a low credit risk borrower and the credit scores will reflect that.

High credit limit will optimize your credit scores

Having a high credit card limit is always good and will improve your score.

  • Ask your lender to increase your credit card limit periodically. 
  • Normally, if you pay all of your bills on time, ask your creditor to increase your credit limit once a year.

Closing Out Revolving Accounts Will Hurt Credit

Other things to avoid when repairing your credit is to close a credit card account.

  • Never close a credit card account. 
  • Having open credit card accounts is another factor that derives your overall credit scores. 
  • 15% of your overall credit score is derived by the length of your credit history and by closing an old credit card account will shorten your credit history and hurt your credit scores. 
  • The more credit card accounts you have with low balances, the higher your credit score will be.

Avoid Hard Credit Inquiries

Other things to avoid when repairing your credit is limit yourself in applying for new credit.

  • Whenever you apply for a credit card, automobile loan, or other installment loans, the creditor will pull your credit and you will have a credit inquiry on your credit report. 
  • Each one of these credit checks is also known as a hard pull credit check and these credit inquiries are not favorable to your credit scores. 
  • Too many credit inquiries will hurt your credit scores and drop your credit score. 
  • This does not mean not to apply for new credit, but do not apply for ten credit cards all at once. 
  • This massive credit applications at the same time will cause major concern to your creditors and they will think you are desperate and ultimately your credit request will get denied.

 Credit Tradelines Recommended

The ideal number of credit tradelines consumers should have is at least three.

  • Consumers should avoid hard credit inquiries.
  • Maximum hard credit inquiries should no more than 3 credit inquiries in any six month period. 
  • Mortgage companies do hard pulls.
  • Credit will be pulled throughout the mortgage process but normally are soft pull credit checks. 
  • The longer consumer credit history, the stronger the credit profile.
  • Start establishing credit as soon as possible.

Any questions in rebuilding credit or need to apply for a mortgage loan please contact us at 800-900-8560 or text us at 262-716-8151. Our email address is gcho@gustancho.com.

2017 Update on Credit Disputes during Mortgage Process

Things To Avoid When Repairing Your Credit during mortgage process is disputing derogatory items on credit report.

  • Mortgage Borrowers who are undergoing credit repair in repairing credit cannot have disputes on non-medical collection items with credit balances during the mortgage loan process.
  • Any aggregate credit disputes of $1,000 greater on non-medical collections will halt the mortgage process until the credit disputes are retracted. 
  • Borrowers cannot have credit disputes on charged off accounts to qualify for FHA Loans.
  • Medical collection accounts are exempt from credit disputes.
  • Borrowers of FHA Loans do not have to pay outstanding collections and charge off accounts.
  • Non-Medical Collections under $1,000 in aggregate outstanding balance is exempt.
  • This is both a HUD and Fannie Mae mortgage guideline for 2017.
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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