Part of the mortgage qualification process involves credit score. Loan programs have minimum credit score guidelines, and your credit can affect the interest rate you are able to obtain. An ideal situation will have a strong credit score, but we realize that every borrower has unique circumstances.
Getting your credit back together takes a combination of new accounts and time. Here is a step-by-step guide for improving your credit score.
Get 5 new trade lines –
Minimum FICO credit score guidelines
- VA Loan – 560
- FHA Loan – 550
- USDA Loan – 560
- Conforming – 580
New credit is essential. You must get 3-4 new revolving accounts (credit cards) and 1-2 installment accounts (personal, car or similar loan).
If you are having trouble with getting new cards or loans, get secured financing. Local Banks offer secured loans where you put money in a savings account, say $3,000 and then you get a personal loan for $3,000. The interest rate is about 0.5% to 1%. When the loan funds, you then have your $3,000 back. Each monthly payment you make reduced the balance and unencumbers the savings. At the end of 36 months your will have a great credit score.
Use the cards you have –
Keep all of your credit cards in use, but never let the balance exceed 35 percent of the available credit limit. The key here is new credit, which is used correctly and never late.
Never close a revolving credit account –
The older and more trade lines you have the better.
Use someone else for help –
This is a cool trick. Have your Mom (or another relative or friend) add you to a credit card that she has had for a long time as an co-borrower, this gets you a retroactive reporting from day one of that account opening as if it were yours all along, this will boost your score.
Refinance your car –
A car loan is also a great thing for rebuilding credit. If you don’t have a car loan, refinance a car for a low loan amount and make payments for 12-24 months. This has an expense of course, but it is very effective at building credit.
Opt Out –
Visit www.optoutprescreen.com and complete the opt-out process. This makes it illegal for anyone to check your credit without your knowledge; as crazy as it sounds, banks do “soft-pulls” on your credit often and you can’t see it, but it hurts your score. The opt out will also really reduce junk mail and solicitations.
Review your credit report –
Make sure the items reported on your credit report are accurate. For example, when you go through bankruptcy, banks feel burned and sometimes they will leave accounts showing past due or in collection. Make sure that everything discharged is listed as such.
Stop checking your credit –
After you get this plan established, don’t run your credit unless it is absolutely necessary. Inquiries lower your credit score.