Please Help!!! Mortgage Scores

[lch4]

Looking to obtain a mortgage loan in the next few months. I've already spoken with a realtor and had my scores checked to see where I stand. Scores came back Transunion 579, Experian 538 and Equifax 511. I was given a to do list. The lender will pull scores again in 120 days and my scores will increase to the needed 600, if I follow the steps below.
1. Open two credit cards. Min of $300. Keep the balance between $1-$25 and NEVER let the balance of $0 report to credit agencies.
2. Pay off Fingerhut card $172 balance to $0 and keep it there.
3. Pay down Capital One card, balance $406 limit $500
4. Don't payoff any collections accounts. Currently have 4 accts.
5. Continue paying Nelnet student loan on time, no late payment.
6. Great Lakes student loan is in deferment until 9/2017
7. Remove any dispute verbiage from credit reports

Your expertise is needed. What will help me maximize my mortgage scores?

Current Status of Cards
Fingerhut Card- Balance 0 Limit $1300
Capital One Card- Balance $11.33 Limit $500
Credit One Card- Balance $75 Limit $400
First Progress Card- Balance $29 Limit $300 .

[Anonymous]

The last thing you should do is apply for ANY credit, much less TWO credit cards a few months before apping for a mortgage. You already have 3 or more cards, so adding additional cards will do nothing for your score other than temporarily reduce it. Pay off all but one credit card, allowing all but one card to report zero balances. Let the last card report $5 or so. That's it. Other than trying to remove some negative items last minute, theres really nothing else to do to prepare for your app.

[lch4]

At the time of having my scores I only had one credit card. The Credit One & First Progress cards were opened last month. So basically I should only keep one credit card open with a very small $5 balance and the other cards need to report a $0 balance.

Is there any reason why the realtor said not to let any card report a $0 balance?? I really didn't understand that concept.

[Anonymous]

Maximum FICO score means having one credit card report $5 (up to 8% of credit limit) and having all your other credit cards report $0.

If all credit cards report $0, you will lose FICO points.  If more than one card reports a balance, you might lose FICO points.  If only one card reports a balance but it is over 9% of your credit limit, you may lose FICO points.

Why is this?

Because FICO isn't for you.  It isn't for consumers.  FICO is used by creditors to analyze how profitable a consumer might be -- and if they are a big risk, then they are a negative profit factor.  People with $0 credit card usage every month are also a "risk" to not being profitable, because they may not use their credit.  So creditors want to see people who USE credit, but use it wisely.  Hency FICO decided that not using credit at all is a risk, as is using too much credit.  

[medicgrrl]

She may have meant not to let them all report $0 because this will drop your scores. I'm not sure that just adding the 2 cards will be enough to raise your middle score to 600. I would visit the Rebuilding forum and list your collections and any other derogatory accounts to find out what else you can do to improve your scores.

[lch4]

I understand know. I'll definitely do that and see how much this helps my scores.

[lch4]

Medicgrrl how do I go about finding the rebuilding forum? Any other advice would help.

[medicgrrl]

http://ficoforums.myfico.com/t5/Rebuilding-Your-Credit/bd-p/rebuildingcredit

We'll be glad to give you suggestions and ideas.

[Anonymous]

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@Anonymous wrote:
The last thing you should do is apply for ANY credit, much less TWO credit cards a few months before apping for a mortgage. You already have 3 or more cards, so adding additional cards will do nothing for your score other than temporarily reduce it. Pay off all but one credit card, allowing all but one card to report zero balances. Let the last card report $5 or so. That's it. Other than trying to remove some negative items last minute, theres really nothing else to do to prepare for your app.

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I agree with above advice. Do not open any more cards. Pay balances down to zero on all cards except one. Let the one card report a small balance like $5 or $10.

ETA: Keep all cards open.

[Anonymous]

Great advice so far.  Do not open more cards.  Pay all cards to zero except one, with the remaining card showing at least $5 but not much more than that. 

TreasureCredit noticed a worrisome part of your last post.  You wrote:

"So basically I should only keep one credit card open with a very small $5 balance and the other cards need to report a $0 balance."

He caught that and emphasizes that you need to keep ALL your cards open.  The $0 balance cards will still be open -- they will simply have a $0 balance.  It's crucial that they stay open.

PS.  It is unfortunately a fairly common belief amongst mortgage lenders that a borrower ideally needs every card to have a nonzero balance.  This is in fact not true and will indeed harm your score,  All zero except one is much better.