Applying for a mortgage loan can subject your credit to all kinds of scrutiny by mortgage lenders.
It makes the process of buying a home challenging. It may even halt the whole process. You’re probably searching for some tips to fix your credit score to buy a house.
Your credit score influences the amount mortgage lenders will give you and the interest rate they’ll charge.
Is It Important To Fix Your Credit Score Before Buying a House?
Your credit score highly affects the kind of loan you can qualify for. The better your credit score, the lower your monthly mortgage payment, and interest rate.
So if you want to get these favorable terms and more for your home loan, yes, it is important to improve your credit score before buying a house.
Low credit scores aren’t particularly appreciated when applying for a mortgage. They are viewed as a sign that the applicant is less likely to service the loan.
Borrowers with high credit scores stand a chance to save thousands of dollars with lower monthly payments and interest rates. If you want to save your money too, first, improving your credit score will be crucial.
Look, if you’re eyeing a $200,000 home with a 15-year fixed mortgage, you can save more than $12,000 over the loan period by improving your credit score from 699 to 760.
What Should Your Credit Score Be Able To Buy a House?
You can qualify for a mortgage loan with a credit score of even 620, but mortgage lenders do not favor it; they charge higher interest and monthly payments for such scores.
Experian, a credit bureau, suggests that a good credit to buy a house starts at 670. Very good credit begins at 740, and the stand-out credit at 800.
Don’t worry about not qualifying for the best rates given your current credit score; each step forward guarantees lower costs.
How Long Can It Take To Fix Your Credit Score To Buy a Home?
The time to repair credit scores depends on how many disputes you have to fix and what you can achieve upon completing the repair.
Most people fix their credit scores with a particular goal in mind. Whatever it is, knowing how long it can take to fix your credit score to buy a home will help you achieve the goal.
From the first steps of reviewing your credit reports to identify disputes to the last ones of responding to the resolutions, a credit repair for the average consumer takes three to six months.
However, Fewer errors and disputes may lessen three periods to even a month.
How can I fix my credit score to buy a house?
There are several ways to fix and improve your credit score to buy a home.
1. Check And Improve Your Payment History
Payment history is one of the major factors affecting your credit score. It takes up the highest percentage of your credit score – 35%.
From now on, avoid late payments if you want to improve your credit score to buy a house.
Delayed payments can result in all sorts of problems that can damage a credit score: repossessions, bankruptcy, foreclosure, and collection accounts.
Delayed payments by up to 30 days will stay on your credit score for seven years, and no one is waiting for that time to end to buy a house.
So, if you are looking to boost your credit score to buy a house, start paying off all your bills on time. With time, it will positively impact your credit score.
You can even put all your regular utility bills on an automatic monthly payment to make sure you never miss a payment.
2. Analyze Your Credit Report
Checking and fixing your credit reports may improve your credit score to buy a house. Errors are what you’ll be looking for.
Get your three credit reports from TransUnion, Experian, and Equifax annually and check for:
- Duplicate accounts
- Incorrect payment statuses
- Incorrect accounts
- Misspelled names
- Outdated information
- Incorrect dates
The Fair Credit Reporting Act allows consumers to access a free copy of all the credit reports every year from annualcreditreport.com. Check them out every four months for regularly updated information.
In case you find errors, file a formal dispute on the website of all the credit reporting bureaus or write them a letter. Specify each error and describe them accordingly, then request correction and copies of documentation as evidence.
The bureaus have one month to investigate your claim. They will send a letter with the results.
3. Opt For A Debt Consolidation Loan
Balance transfer or debt consolidation loan combines all your outstanding debts from different accounts into one monthly payment.
If you have several credit accounts that give you trouble managing, a debt consolidation loan may be most suitable for you. It helps avoid missing any payments and improves your credit utilization.
Applying for a consolidation loan results in a hard inquiry on your credit reports. It means your score will drop slightly after the inquiry.
So make timely payments above the minimum amount required after getting a debt consolidation loan.
4. Clear Credit Card Debt
You’ll witness an increase in your credit score once you pay off your credit card debt.
What you spend compared to your credit limits is called credit utilization. It accounts for 30% of your credit score.
Mortgage lenders use your credit utilization to determine whether you manage your debts well or not.
Generally, Utilizing 20 – 30% of your credit card limit is considered okay. Using more might indicate the possibility of delayed repayments or hint that you are in financial challenges.
Poor credit utilization is straightforward to solve. Simply clear, or at least pay down your credit card debt.
It sounds easy, but in truth, it may not be; however, this method is not complicated. By having little or no credit card balances, your credit score improves by up to 30% in no time.
Having fewer expenses can help you manage your credit card debt. Unsubscribe from apps and services that you no longer use, or instead charge monthly.
5. Become An Authorized User
For those with very little or no credit history at all, becoming an authorized user in someone else’s credit account can help fix your credit score to buy a house.
It helps boost your score, especially if the original holder’s credit score is high. Although you can purchase items or pay for services using the card, total liability still falls under the original holder.
Becoming an authorized user to an account with good credit adds more credibility to your credit.
Final Thoughts
Fixing your credit before you buy a house is a worthwhile action. It increases your chances of qualifying for a loan and attracts favorable terms.
The results may not be instant, but consistency is key in improving your credit score.
If you’re thinking of buying a house with bad credit, apply these steps and start getting ready to go house hunting.