Is There A Rule-of-Thumb Regarding The Number Of Credit Lines To Have Open?

While the actual credit score has a big impact on a loan approval, it’s not the only component of the credit scenario that underwriters consider for a mortgage approval.

Since loan programs, individual lenders and mortgage insurance companies all have their own credit report restrictions, it’s difficult to define a standard Rule-of-Thumb to follow.

However, the number of “Open and Active Trade Lines” seems to be the common denominator in most approvals.

A trade line is basically a credit card, installment loan or other credit liability that is reported to the credit bureaus and displayed on a credit report.

Credit Trade Line / Approval Bullets:

  • Banks usually won’t count a trade line that is less than 12 months old.
  • The minimum number of trade lines most lenders find acceptable is 4 open and active trade lines.
  • Lenders like to see at least one credit line of $5,000, or all credit lines to total $1,000 or more.

Exceptions to Trade Line Rules:

Interestingly enough, a recent list of Mortgage Insurance requirements included a favorable trade line requirement, which read:

Min 3 trade lines @ 12 mo reporting. Cannot be ‘authorized user’

Basically, this means as long as the lender, and the loan program allow for less than 4 trade lines, this mortgage insurance company will accept only 3 trade lines that are in the borrower’s name.

Another exception to this rule is if you have no FICO score, and no negative trade lines.

In this case you may qualify for an “alternative credit” loan. The most common loan of this type is insured by FHA, but there are select programs that are usually targeted to assist people whose culture does not trust or use banks.

Borrowers applying for a non-traditional credit loan will still need to prove they have successfully paid their bills on time for 12 months by clearly documenting at least four creditors.  A verification of rent from a property management company, power, utilities, cell phone… are alternative sources of credit that can be used.

*A letter from a landlord or creditor stating that the bills were paid on time is not acceptable forms of proof.  Lenders will need canceled checks and / or copies of bank statements to start out with.

Since not all companies report to credit bureaus, it’s possible to get a free credit report at AnnualCreditReport.com to verify your total reported trade lines.

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March 28, 2010 by · 2 Comments

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About Hans

My goal is to give you the information so that you can make an informed decision on your next mortgage. If I can help you directly on a California mortgage that would be nice as well.

Comments

2 Responses to “Is There A Rule-of-Thumb Regarding The Number Of Credit Lines To Have Open?”
  1. Renee Y says:

    I have a conventional loan that is not backed by Freddie May or Fannie Mac. However, it is difficult for me to refinance this loan or sell the property. My interest rate is 7%. I need to speak with a professional that will be able to assist me in having this loan purchased by FM or FM. Please contact me so we can discuss.

    Thanks,

    Renee

  2. Hans Bruhner says:

    Renee,

    I will reach out to you directly as well but it is a good question and I will answer for everyone as well. Most conventional loans are backed by Freddie Mac or Fannie Mae and there are some that are not. Freddie Mac and Fannie Mae have special programs for people whose loans are already owned by them but do not fit in the box and a refinance would help the homeowner which will make it easier to keep the mortgage current and creates a win/win. When the loan is not already owned by these backers of mortgages, no mortgage professional can work with you to get them to purchase your loan.

    You can work directly with your current mortgage servicer to modify or refinance your loan but they do not have federal programs designed specifically to do so like Freddie Mac and Fannie Mae do.

    The programs you are likely interested in are HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program). Most lenders can help with HARP and the servicing lender (who you pay your monthly mortgage too) needs to help you directly with a modification.

    Now with values coming back and negative equity going away, these programs are shrinking instead of growing.

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Hans Bruhner and Finance of America Mortgage LLC are both licensed by the California Department of Business Oversight under the CRMLA