FHA Credit Guidelines, and Driving Up Your Score
Posted by John Scott Smith on Fri, Mar 05, 2010 @ 12:40 PM
As we've discussed, before, the changes in the FHA credit guidelines have been going on long before FHA announced their impeding updates. That's because while the FHA may insure the mortgages, the banks that originate them are under constant scrutiny by the FHA to insure that those mortgages perform and that the borrowers are able to afford them.
Right now, if you have lower than a 620 credit score, you'll want to address that and drive it up so that you will qualify for a mortgage. Further, if you already have a credit score that is above a 620, there are actions that you can take, right now, to improve it, which may qualify you for lower payments, less money down, or even more money out if you are trying to take equity out of your home with a cash out refinance.
The Washington Post just ran a good article on why your credit score may have recently fallen, even if you are doing everything right.
Here at MyFHA, we've turned to our own circle of lenders who regularly help our customers get mortgages and asked them for ways that you can work on improving your score, right now. This is what they shared.
Let sleeping dogs lie.
Do NOT initiate a payment plan on any old collection accounts. While it may seem counterintuitive, sometimes paying on an old account can change it from an "old" delinquent account into a "recent" delinquent account which can have a much more negative impact on your score than just leaving well enough alone.
Dance with the one that brought you.
Now is the time to stay with the lines of credit that you already have. No new ones, and do not cancel any old ones, either. If you want more credit or a different credit card, there will be plenty of time for that once you've closed on your new mortgage. Right now, keep the lines that you have, even if they are at higher interest rates than you could get somewhere else and even if they are with one of the "BIG BANKS" and you've decided (like a lot of other people) that you don't want to work with them, anymore.
Don't use it all up.
The magic number for the percentage of available credit that you use that reflects "well" on your credit score seems to be between ten and twenty percent (10-20%). This means that if you have ten thousand dollars ($10,000) in available credit, you should not carry more than one to two thousand dollars ($1,000-$2,000) on your cards at any one time. And, make sure that you spread it around. One of the lenders that we interviewed for this piece told us that they recently helped one of their customers increase their credit score by a full sixty-seven (67) points in less than one month by having them pay down one maxed-out credit card. That can have an enormous impact on qualifying for the best mortgage.
There you have it. These are the three quick steps that you can take to drive up your score in a short period of time. If you need assistance addressing more substantial problems with your credit, just let us know, and we'll put you in touch with someone who can help.
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