Post Series: Credit & Debt

Man approved for a loan

Being turned down by a mortgage lender can be a huge disappointment. But before you give up hope, let’s take a look at your options for improving your credit and reapplying.

Since the financial crisis, mortgage requirements have tightened up in order to keep the housing market from bottoming out. This means that your credit history is under more scrutiny than it would’ve been prior to 2008.

With a few financially savvy steps, you can be on your way to getting approved. Let’s dive into some options to get you in a house as soon as possible.

Identify Why You Were Denied and Take Action

The first step is to return to the source. If anyone knows why you’ve been denied a mortgage, it’s going to be your lender. And according to the Equal Credit Opportunity Act, lenders are required to tell you why you’ve been turned down for credit reasons. They must include a letter with the specific details, as well as the name of the credit reporting agency that supplied that information. If you feel that this letter is too vague, don’t hesitate to have a conversation with your Home Loan Expert. Feel free to call or shoot them an email. Lenders want your business, so they’ll be happy to help you dig up the root of your credit issues.

New to Credit

Before we get into the idea of rebuilding credit, what if there’s nothing to rebuild at all? This might be the case if you have no credit. It’s important to get your credit history started before applying for a mortgage so that your lender has some idea of how you manage credit and debt.

Secured Credit Cards

A common way to get started is with a credit card secured by your own funds. If you put down $1,000, for example, your credit limit would be $1,000. After you’ve had this for a while and built your score up with on-time payments, you can move to a traditional credit card.

Another good way to build up your credit if you’re new to this game is to piggyback on someone else’s good credit. For example, parents might add their child as an authorized user in order to let their child reap the benefits of good credit, with the parents still being responsible for the bill.

Credit-Builder Loans

Another way to build credit would be to take out a credit-builder loan. These go by different names, but they’re personal loans that are secured by the borrower’s personal funds. They’re repaid in installments. Local banks and credit unions may work with you on these.

Other types of credit builder loans functions similarly to the secured credit card. Instead of getting all the personal loan funds at once, you’re given an account to use as a line of credit that you make monthly payments toward.

How to Rebuild Credit

If you aren’t new to credit, you might have a credit score lower than you’d like. But, with the correct steps, you may be able get it to where you want it.

Fire Up the Credit Monitoring

The best way to get the ball rolling on rebuilding credit is by monitoring it. Our friends at QLCredit offer an excellent way to start doing that.

QLCredit lets you view your Equifax credit report and score for free once a month. You also get personalized tips on ways to improve your score. You’ll also be able to track your monthly debts and your credit utilization. Having more insight into your credit on a regular basis will help you with everything we’re going to discuss in the upcoming sections.

Trials and Errors

Between the credit bureaus and the creditors that play a part in developing your credit report, mistakes are bound to happen every now and then. Errors that appear on your report can lower your credit score and be a big headache to fix.

Common errors include outdated information, incorrect payment statuses, wrongfully duplicated negatives, and most importantly, fraudulent accounts. Eliminate any chance of error by sifting through your credit report with a fine-toothed comb. If you find anything that looks unusual, take the proper steps to dispute your credit report.

Pay Down Debt

One of the biggest things you can do to improve your score is to pay down any debts and pay off any collections you might have showing on your credit report. If it’s unrealistic for you to pay off the whole amount, you can try to work out an arrangement with creditors to pay what you can. This shows up on your credit report as “paid as agreed.” While it won’t raise your credit score as much as paying off the debt in full, paying something is better than nothing.

Keep Accounts Open

When you pay your debt down, try not to close the accounts. This could hurt your score because you want to have a variety of accounts open. We’ll get into this more in an upcoming section, but you want to make sure you have a mix of credit cards, auto loans, possibly personal loans, etc.

Also, while you want to pay down debt, it can hurt your credit score to completely close an account. This is because it will eliminate the amount of credit you have available to you. If you close an account, even if you spend the same amount on your credit cards, you’re using a larger percentage of your remaining available credit. We’ll get into credit utilization more below, but for now, you should know that if you use too much of your credit, future creditors may be hesitant to extend loans and other credit to you.

Pay on Time

Another factor lenders look at when you apply for loans is whether you make payments on time. Paying your bills when they’re due will improve your score.

Diversify

Another big key to increasing your score might be to have a good mix of revolving credit debt and things like installment loans like a car or personal loan. Mortgage lenders want to see that you can effectively manage different types of debt.

Increasing Credit Limits?

A good second phase of your credit score rebuild is to try and get your credit limits increased. For example, if you currently have a $500 credit limit, a lender might be willing to increase it to $1,000.

I say this is the second phase because lenders aren’t likely to do it if they view you as too risky. You may want to wait until you’ve been rebuilding for a while.

Credit Utilization

In order to keep your credit score high, you don’t want to use too much of your credit, as this can be a sign of financial stress. The experts at QLCredit recommend using no more than 30% of your overall credit limit between all of your accounts. If you have one credit card with a $1,000 limit and another with a $3,000 limit and total carryover balances of $800 per month between the accounts, your credit utilization would be 20% ($800/$4,000).

Getting Back on Your Feet

The journey to reapplying for a mortgage after being denied can feel like an uphill battle, but you can take some steps to bolster your credit score. You can contact your Home Loan Expert today and craft your game plan for being approved.

Looking for more credit tips? Subscribe now to the Zing Blog and don’t forget to visit QLCredit for all your credit monitoring solutions!

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This Post Has 130 Comments

  1. I”m looking to sell my house,and i plan to make a nice profit off the sale,but the problem I have is that my credit score is low,and how do I go about buying another house even with 20% down payment.

    1. The tips in this blog post are a good start. There’s also a service we offer in QLCredit where you can get your report and score for free with personalized tips. Finally, I’m going to recommend you contact one of our Home Loan Experts who may be able to help you with an improvement plan for your credit. Hope this helps!

      Thanks,
      Kevin Graham

  2. I’m working on my credit (poor) and want to know how I can get it up. I’m a first time homebuyer? Went to that program for the first time homebuyer and was told that I needed a better paying job. What steps should I take to getting my score higher?

    1. Hi Chrissy:

      It doesn’t sound like that program was very helpful. Sure, a better paying job helps, but what also helps is taking a look at your budget overall and determining if there are any areas where you can cut back. Then, you just put as much as you can toward your debt. If you follow the tips in this blog post, that will also help. I’m also going to recommend you check out QLCredit. You can pull your credit report and score for free without affecting your score. The service will give you tips on how to improve. You can also speak with one of our Home Loan Experts. They may be able to give you advice that gets you headed in the right direction. You can give them a call at (888) 980-6716.

      Hope this helps get you started. Have a great day!

      Thanks,
      Kevin Graham

  3. My credit score is 567, I am divorced and my husband has mortgage in his name but I am on deed. Is there a way I can get help on assuming mortgage in my name.

    1. Hi Terrance:

      If you’re looking to assume the existing loan, you would have to be awarded the property in the divorce and then work with the existing lender and/or servicer. They may require that you improve your credit. Typically, you need a credit score of 580 to qualify for an FHA loan and at least 620 for a conventional loan. Starting with the tips in this blog post will help. You could also check out QLCredit and get tips based on your report. Thanks!

      Kevin Graham

  4. I’m looking to buy a home. I’m a first time home buyer, but I have poor credit. What can I do to improve my score?

    1. Hi Kathy:

      The tips in this blog post are a good start. It would also be good for you to check out QLCredit and get personalized tips based on the information in your credit report. Finally, one of our Home Loan Experts may be able to give you ideas if you give us a call at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin

  5. The only reason why my credit is bad is because of hospital and doctor bills one cell bill. We pay rent on time. lot rent own our own mobile home.

    1. Unfortunately, we don’t do mobile home financing. However, we may be able to help you improve your credit. We do have a service in QLCredit where you can get personalized credit tips based on your report to try and improve your score. Hope this helps!

      Thanks,
      Kevin Graham

  6. My credit is terrible is there anybody or company who can help get my credit together to become a first time homeowner.

    1. Hi Bridget:

      The tips in the blog post are a good place to start. I also recommend you speak with our friends at QLCredit. You can get your credit report and score for free once a month without affecting your score. You’ll also get personalized tips on how to improve. Finally, you could also speak with one of our Home Loan Experts at (888) 980-6716. They may be able to offer helpful advice and see if we can get you where you need to be.

      Thanks,
      Kevin Graham

  7. its sad that credit scores stop you but whats most saddest you reach out for help and there is no helpyou say even with bad credit you can help thats a lie But whats so sad is my mom used my name anarest her soul but im stuck with this bad credit and i cant get help

    1. Hi Peggy:

      I’m sorry to hear about your problems with a stolen identity. That’s a bad situation, but you don’t have to be stuck there forever. The first step is to dispute any accounts your mom opened that aren’t yours. All three credit bureaus have dispute resolution processes. Merely by getting those accounts removed from your report, you should see a substantial difference. And then you can work toward building your own credit record on its own merits.

      We do have a few resources intended to help get credit profiles in order so that our clients can qualify. We may not be able to get you qualified for a mortgage right away, but we can point you on the right path to accomplish this and other financial goals you may have in the future.

      I see that you’ve reached out to us. I’m going to have someone contact you about any potential options we have to help you with your situation. I wish you luck! You can get through this.

      Thanks,
      Kevin Graham

  8. This was the best info received on my interest in buying a home. I once had perfect credit due a lost job bills acquired during that time got hard to keep up making less income. I am rebuilding my from 495 to 555 in less than 3 months which I think is good. I’m more determined to buy thanks to these helpful tips, I’m on my way.

    1. Hi Gay:

      I’m glad to hear you’re starting to turn things around and that this was helpful. If you’d like further credit advice, QLCredit lets you pull your report for free without affecting your score and gives you personalized tips on how you can improve based on your score. Once you’re ready to get a mortgage, (580 FHA, 620 for conventional), you can either get started online through Rocket Mortgage or give one of our Home Loan Experts a call at (888) 980-6716. Good luck! It sounds like you’re well on your way.

      Thanks,
      Kevin Graham

  9. Hello, my 2 sisters and I inherited my mom and dads mortgage free home, I would like to buy them out of the home, my credit score I’m working on its 557. I would like some information what kind of loans could I qualify for.

    1. Hi Kelly:

      We can’t help you with a mortgage until your credit score gets to 580 and then we can look at FHA loans. I’m going to suggest you check out QLCredit. You can get your credit report and score for free without affecting your score. Moreover, you can get tips on how to improve.

      I’m also going to suggest you speak with one of our Home Loan Experts by calling (888) 980-6716. They may be able to offer you some helpful tips.

      Thanks,
      Kevin Graham

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