4 Ways To Raise Credit Scores To Qualify For Mortgage

This BLOG On 4 Ways On How To Raise Credit Scores To Qualify For Mortgage

Many home buyers ask How To Raise Credit Scores To Qualify For Mortgage? You need a specific minimum credit score to qualify for a mortgage. For example, here are the minimum credit score requirements to qualify for mortgage loan programs:

  • FHA Guidelines On Credit Scores require that borrowers need a 580 Credit Score to qualify for a home purchase FHA Loan with a 3.5% down payment
  • FHA has debt to income ratio requirements with credit scores. FHA limits the debt to income ratio to a maximum 43% debt to income ratio cap for borrowers with under 620 FICO credit scores and borrowers with at least a 620 Credit Score or higher can go up to a 56.9% debt to income ratio. Those with higher debt to income ratios needs to raise credit scores to qualify for mortgage with FHA
  • VA Loans require minimum credit scores of 580 FICO
  • Fannie Mae and Freddie Mac require credit scores of at least 620 FICO to qualify for Conventional Loans
  • Most Jumbo Lenders require credit scores of at least 700 FICO
  • Portfolio Lenders will require credit scores of at least 680 FICO

Two of the most important factors in qualifying for a mortgage are the following:

  • Documented verified qualified income
  • Credit Scores

As long as you have documented verified qualified income and have low credit scores, there is hope in you qualifying for a mortgage loan. There are quick fixes on how to raise credit scores to qualify for mortgage. However, there are no quick fixes in raising your documented verified qualified income unless you get a raise, promotion, or change to a better paying job. However, credit scores fluctuate monthly and on I am going to show you some quick fixes on how to raise credit scores to qualify for mortgage.

Adding New Credit Is Great Way To Raise Credit Scores To Qualify For Mortgage

I run into many folks who come to me for a mortgage who did not have any late payments and pay all of their bills on time but just cannot get to a 580 FICO Credit Score. A 580 Credit Score is what is required for a 3.5% down payment FHA home purchase loan. One of the reasons why these folks do not have a 580 FICO credit score is because they have no active revolving credit tradelines. Here is how they can instantly boost their credit scores:

  • Secured Credit Cards
  • Adding Yourself On As Authorized User
  • Credit Disputes
  • Paying Down Credit Card Balances

Secured Credit Cards To Raise Credit Scores To Qualify For Mortgage

Get three credit secured credit cards with at least a $500 credit limit. The way secured credit cards work is you make a deposit with the secured credit card provider and the credit card provider will get you a credit limit equivalent to the amount of your deposit. There is a fee for this as well as an annual membership fee as well. This fee and cost is well worth its weight in gold. You are doing this not for getting a credit card but for you to establish your credit. Do not ever be late on any monthly payment because secured credit card companies will report late payments on your credit report. If you are timely on your monthly payments for six months to a year, the secured credit card company will raise your credit limit without asking you for any additional deposit. This is the best and easiest way of establishing your credit and raising your credit scores. If you have no active revolving credit, adding each secured credit card with at least a $500 credit limit can boost your credit scores by at least 20 points for each card.

Adding Yourself On As Authorized Credit Card User To Raise Credit Scores To Qualify For Mortgage

Many credit repair companies sell credit tradelines. A credit tradeline is a revolving credit card account that has been seasoned for at least 12 months and is a very positive factor for a borrower. It shows past on time payment history and lenders view a past timely payment credit history as an indication that the borrower will be timely on future payments. The way credit repair companies sell credit tradelines to borrowers is by adding the borrower to their credit card accounts that have large credit card limits and low credit balances. This strategy used to work but no longer works because the credit bureaus caught on. Adding yourself on to another person’s credit card account that has a different address no longer boosts your credit scores. It does give you the credit tradelines but will not greatly affect your credit scores. However, adding yourself on to another person’s credit card who that person lives with you and share the same address will help raise your credit score and can drastically boost your credit scores. If you can add on yourself as authorized user to a spouse’s credit card, son or daughter’s credit card, or parent’s credit cards as authorized user, this will raise credit scores to qualify for mortgage. Remember that the main user of the credit card and you need to have the same address in order for this strategy to work. In order for this strategy to work, the main card holder needs to never have been late on their credit card payments and have a very low credit card balance. Lower than 20% balance compared to the credit card limit.

Credit Disputes As Strategy To Raise Credit Scores To Qualify For Mortgage

There are strict rules and guidelines on credit disputes during mortgage process , especially with FHA Loans. Here are the Guidelines with credit disputes during the mortgage process:

  • You cannot have credit disputes on non-medical collection accounts if the total outstanding unpaid balance totals greater than $1,000
  • You cannot have any credit disputes on charge off accounts
  • You are allowed to have credit disputes on non-medical collection accounts on items that have zero balances
  • You can have credit disputes on medical collections no matter how much the outstanding unpaid balance is

Why Can’t You Have Credit Disputes During Mortgage Process?

The main reason that you cannot have credit disputes is because once the verbiage Consumer Disputes Account is on the collection account and/or derogatory item in question, the credit bureaus will automatically take that collection account and/or derogatory account off the FICO credit scoring model so that derogatory item is not counted in factoring your credit scores. Bottom line is that once you do a credit dispute, your credit scores will go up because the collection account and/or derogatory account does not exist. However, once you retract that credit dispute or disputes, your derogatory item is factored back in so your credit scores will plummet. Retracting credit disputes will drop your credit scores so mortgage lenders should not issue any pre-approval letters unless all credit disputes has been retracted.

Disputing Medical Collections To Raise Credit Scores To Qualify For Mortgage

Here is a quick trick of the trade to temporarily boost your credit scores by disputing medical collections and non-medical collection accounts if your collection account balances are under $1,000 or zero balances:

  • If you have recent medical collection accounts, you can dispute them and your credit scores will go up because the credit bureaus will take those collections out of factoring your credit scores. Medical collections are exempt from credit disputes and you are allowed to dispute medical collection accounts.
  • If you have non-medical collection accounts with aggregate balances of under $1,000, you can dispute those and the credit bureaus will take those negative items off the factoring of your credit scores and your credit scores will go up.
  • Remember that these are temporary fixes and once those derogatory items are verified by the creditor or collection agency or you end up retracting the credit disputes, your credit scores will go back down.
  • Mortgage lenders will use the middle credit score and the credit score that they use with the submission of our loan, that credit score will be used throughout the mortgage process and is good for 120 days.

Paying Down Credit Card Balances

Maxed out credit cards will plummet credit scores. Make sure that your credit card balances are at or below 15% of your credit card limit. Maxed out credit cards can plummet your credit scores by more than 100 points depending on how many of them you have. Paying down your credit card balances will be a quick fix to raise credit scores to qualify for mortgage.

If you have lower credit scores and need advice on how to raise credit scores to qualify for mortgage, please contact Gustan Cho at 262-716-8151 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

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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