Different lenders have different requirements. We go as low as 620 credit scores. We will follow automated underwriting as far as debt to income ratios are concerned (620 to 639 we have a max debt to income ratio of 43% with higher credit scores we have done debt to income ratios as high as 57%). You will be required to invest a minimum of 3.5% as a down payment. We also do manual underwrites for borrowers with no credit scores. Feel free to contact me if you have any other questions or if you are interested in making a formal application.
Sr. Mortgage Banker
3420 Toringdon Way #210
Charlotte NC 28277... more
Establishing some good credit will do more to improve your credit scores than paying off your old collections. However, you do need to pay off any judgements or leins, like income taxes.
You need at least 5 good tradelines (credit accounts). Let's assume you have a car payment and you are making those payments on time. Then that is one good tradeline. Maybe you have a student loan that you are making payments on. Then that would be another good tradeline. Good being that you are making these payments ontime every month.
Maybe you have a credit card for which you are making ontime payments. Then let's look at that credit card. Your balance needs to be no more than 35% of your credit limit. If it is, pay it down or you might even call and get the limit increased. You might also get another credit card and transfer a portion of the balance to the new card so that both cards have a balance no more than 35% of their limits.
Other types of credit that you might consider getting are retail store credit cards or gasoline credit cards. Just be sure to use well know companies that you are sure report to the credit bureaus.
The key is to make your payments ontime.
If you are in a position of having to establish new credit then it will take approximately six months for all of this to really kick in and begin to impact your credit scores in a positive manner.
Hope this helps. Stay your course and your scores will get better.