It’s pretty much a given that any particular mortgage program will require a minimum credit score. Depending upon the type of loan and the amount of down payment, credit score minimums can vary. For instance, an FHA loan asks for a minimum down payment of 3.5%. FHA guidelines require a minimum credit score of 580. With a down payment of 10% or more, FHA score requirements fall all the way down to 500.
Most conventional loans on the other hand, those underwritten to standards set by Fannie Mae or Freddie Mac, ask for a minimum score of 620. If you’re just starting out to establish your credit history or have a credit history but has a few blemishes on it, it’s possible your existing scores are too low at the present time for a loan you’re looking for. But there are some things you can do right away to nudge those scores back up. Even for someone with a score near 700, these tips can help as well.
One, and this certainly makes sense, is to make your payments on time to existing creditors. While that’s all too obvious there’s a difference between making a payment on or before the due date compared to making the payment more than 30 days past the due date. Let’s say an account has a due date on the 5th but you don’t get paid until the 15th. If you pay it on the 15th it won’t be counted as late as it relates to credit scores. Just make sure you make the payment within a 30 day period. Important note: pay attention to any late penalties that might appear if you make your payment beyond the required due date.
Second, keep balances around one-third of credit lines. Many might at first think that carrying a zero balance is better for scores than actually having a balance due. That’s not the case. Scores can improve with a balance along with making timely payments. But if there’s no balance, there are no payments being made. Timely payments account for 35% of the total score while proper balances make up 30%. You can tell right away that concentrating on these two alone will have the greatest impact and sooner rather than later. For those with sterling credit, this category will carry the biggest punch.
Third, pay close attention to how many credit accounts you have. When first starting out with credit accounts, there will be credit inquiries made by the creditors you’re applying with. Most mortgage programs ask there be at least three credit accounts appearing on a credit report. Once you’ve reached these numbers, sit tight. Don’t apply for additional credit, at least not right away. A few initial inquiries for credit won’t hurt your scores but multiple requests over an extended period of time will.
Next, and this is for those with damaged credit, seek out a secured credit card. There are credit card companies that cater to those with bad credit. Getting approved for one of these cards allows you to start rebuilding credit by paying on time and keeping balances in check. A secured card is one where the applicant submits a fee to the issuer as a security deposit. For example, a secured card with a $500 limit might ask for aa security deposit of $500. Over time, the credit limit can increase with timely payments. The accounts report to credit bureaus just like other accounts do. With timely payments, your scores will begin to rise to levels that work for most mortgage programs.
Make timely payments, keep balances around one-third of credit lines, keep credit inquiries to a minimum and for those needing to rebuild scores, seek out a secured card. Sometimes people who have poor credit don’t know where or how to start rebuilding. These four tips will jump start that process.