Fixing Your Credit to Buy a House

November 16, 2020 | by Jacob Hamilton

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Your credit score impacts most big purchases in your life, including the purchase of a home. If your credit score is too low, you are deemed too risky and can be denied a mortgage. Or, you may be able to get approved for a mortgage with a bad credit score, but it may be with an incredibly high interest rate. That’s why it’s essential to start fixing your credit to buy a house.

What Credit Score Do I Need to Buy a House?

Your credit score can range anywhere from 300 to 850. Here’s a general look at credit score ranges:

  • Poor: 300 – 579
  • Fair: 580 – 669
  • Good: 670 – 739
  • Very good: 740 – 799
  • Excellent: 800 – 850

The average FICO score in the United States is 703.

While the exact score will vary for each lender, most lenders will want to see a credit score of at least 580 to 660 to approve a mortgage. However, it’s important to know there’s a difference between being approved for a mortgage and being approved with a reasonable interest rate. It’s estimated you need to have a credit score of around 740 or higher to get the best interest rates on your mortgage. That’s why many individuals want to fix their credit before buying a house.

How Do I Know What My Score Is?

Your credit score is determined by the three major credit bureaus: TransUnion, Equifax and Experian. Your credit score will vary slightly with each bureau, but they’ll generally be in close proximity to each other. You can receive a free copy of your credit report from each of these institutions once a year, and you can get your score from various free and verified websites as well as your credit card lender.

Your score is supposed to show how likely they are to repay debts. The higher your score, the less risky you are to financial institutions. Be aware of the five factors that affect your credit score (according to the FICO scoring model):

  • Credit payment history (35 percent)
  • Debt-to-credit utilization (30 percent)
  • Length of credit history (15 percent)
  • Credit mix (10 percent)
  • New credit accounts (10 percent)

How Can I Boost My Credit?

If you know it’s in your plans for the future, you may want to start working on fixing your credit to buy a house. You don’t know how long it will take to see an improvement on your score, so the sooner you can start the process, the better.

Review the Information on Your Reports

First, you must obtain a copy of your credit report and review all the information. Mistakes are made on credit reports all the time. Your credit score could be lower than it should be because it has incorrect data on it. That’s why it’s vital to get your free credit report every year and check it for mistakes or questionable or unfair items—you might be surprised at what you find.

Begin the Cleanup Process

Next, you need to start thoroughly cleaning up your reports. After discovering any errors, you’ll want to move on to challenging any negative items that you believe shouldn’t be on your report. For example, debts that are more than seven years old should be stricken from your account. Additionally, credit bureaus shouldn’t have anything on your report that hasn’t been verified. If you believe there’s something on there they can’t prove, you can challenge it.

Make sure to keep a record of your efforts. That way, if your progress is halted or reversed, you have something to refer to as proof of your initiative.

Work With Credit Repair Professionals

Dealing with credit bureaus can be exhausting, and trying to change your credit report takes a lot of patience and energy. That’s why many consumers find it beneficial to work with credit repair services to help improve their scores. Credit repair services guide you through your credit report to help you find and challenge any questionable negative items, dispute any unverified negative items and monitor your credit for additional issues.

The credit repair advisors have experience in this field, so they know exactly how the process goes. They know what to look for, how to start a dispute or challenge and what documents will be required. Additionally, working with a credit repair service can save you time because you don’t have to do it yourself, although there are no guarantees as to how long the process will take.

Watch Your Credit Utilization

Your credit utilization refers to the monthly ratio of the amount of credit you have available versus what you actually use, and it makes up 30 percent of your credit score. Ideally, you want to keep your credit utilization at 30 percent or less. So, if you have two credit cards with a limit of $500 each, your total available credit is $1,000 per month. Let’s say you carry a balance of $800 from one month into the next. Your credit utilization is now 80 percent—this isn’t a good sign to the banks because it makes you seem risky. But stay at or below 30 percent and you should be doing fine.

Make Every Payment on Time

Your credit payment history is the most significant factor in your credit score. This means you need to pay your debts on time every month, in full or as much as possible. Try to automate your payments so you never miss a payment.

Become an Authorized User

People with limited credit history often don’t have many options for improving their credit. After all, their problem is that not enough time has passed. You can’t speed up time!

One solution to this problem is to find a family member or friend with excellent credit who is willing to add you as an authorized user to their account. You don’t need to actually use their account, but you will benefit from their good credit history on your credit report. Of course, it will be important that you as well as your family member or friend use this line of credit appropriately. You should think of it as your account because if you have a late payment, it will also go on your credit report as well as your friend’s or family member’s.

Other Ways to Improve Your Chances of Getting Approved for a Loan

If you don’t have enough time to start fixing your credit to buy a house, you have a few other options.

Make a Sizable Down Payment

Individuals can get approved for a mortgage with a down payment as little as three to five percent of the home’s purchase price. However, if you have less than a 20 percent down payment, you’ll likely have to get private mortgage insurance (PMI). This type of insurance protects the lender in the event you default on your home.

If you do have a 20 percent down payment, your chances of being approved for a mortgage will significantly increase because you’ll be seen as less risky.

Have a Steady Income

When your mortgage application is reviewed, the lender will look at your employment details. It helps to have a steady income and to have had the same job for at least two years. This helps to assure the lender you’ll be able to make the mortgage payments.

Work With a Familiar Bank or Credit Union

When you choose a financial institution you’ve already worked with, they have a better relationship with you. They know what your financial history and habits look like, and they likely want to keep your business. You’ll have a better chance of approval with a familiar bank or credit union versus a brand-new one.

Having a good credit score will help make the process of home buying easier and less stressful. Even if purchasing a home isn’t in your near future, start repairing your credit now. CreditRepair.com is here to help.


Jacob Hamilton

Jacob Hamilton

GM of CreditRepair.com

With his master's degree from the University of Phoenix, Jacob has been working as the General Manager for CreditRepair.com for 2 years. Jacob is passionate about consumer finances and doing everything he can to make credit repair accessible....

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