Other than financial shortcomings, the one thing that will kill a mortgage loan quickly is credit problems. Credit reports are heavily used to determine if you qualify to purchase a home. Below a score of 640 is treated as unfavorable credit, and above 700 is seen as an excellent “A” score. However, if you strategize, say representatives at one credit union in houston, you can boost your scores within one year, qualifying you to purchase a home.
How Can You Win the FICO Scoring Game?
One thing most consumers are not aware of is that the scores provided to you by the three credit bureaus are not the same scores mortgage lenders receive. There is about a 25 +/- difference, and no one from the credit bureau will explain why there are differences. However, mortgage lenders receive a much more comprehensive report than the public has access to. It doesn’t seem fair, but if you think you have a 650 score, it could really be higher or lower, which impacts your loan. So, it benefits you to strive in obtaining higher scores.
Increasing your scores depend on your particular situation. If you have credit cards, lowering your balances will quickly increase scores. You never want to use more than 35 percent of the available credit you have on any revolving credit line. Use more than 35 percent, and your FICO score will be lowered. In most people’s mind, it’s good to pay off the entire balance of their credit cards each month; in theory, that sounds right, but this will tank your credit scores. The scoring system is based on how well you use your credit.
If you don’t have enough credit, and need to quickly increase your score, get a credit card. 30 percent of your score is based on credit card balances versus your available credit. This doesn’t mean run out and get a bunch of cards and max them out because that will actually cause you to lose points. Get a card and charge up to 30 percent of the balance.
Everyone Needs One Installment Loan
Ten percent of your credit score is based on a mixture of credit accounts, like an installment loan. These accounts are not the same as credit cards; it’s a set balance with a fixed payment, like an auto loan. These accounts have an “I” next to it on your credit report. If you don’t have an auto loan and are not in the position to purchase a car, go to a credit union and ask if they have small secured loans to rebuild credit. Many people will open a savings account, deposit $500, and take a $300 installment loan, using the savings account as collateral. You make a $50 payment for six months and they report this to the credit bureau. You increase your credit score by 50+ points, just from having an installment loan.
Credit decisions today boil down to a three-digit number and if you’re not happy with your current report, there are ways to change it, but it requires planning because change won’t happen overnight. And you can eventually qualify for a mortgage if you’re willing to put in the work to meet the strict requirements.