- 1.Turned Down for What: Rebuilding Your Credit After Being Denied a Mortgage
- 2.Can You Get a Mortgage If Your Spouse Has Bad Credit?
- 3.Considering Credit Counseling? Here’s What to Expect
- 4.How Does Your Credit Score Affect Your Mortgage Eligibility?
- 5.9 Common Credit Card Mistakes to Avoid
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.
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 Rocket HQ offer an excellent way to start doing that.
Rocket HQ 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.
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.
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 Rocket HQ 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.
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