How to Fix Your Credit (Fast) to Buy a House

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Malcolm-Wiley Floyd

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Jul 27, 2023

CEO and Co-Founder of Stairs Financial, a YC-backed startup that connects first-time home buyers with down payment assistance programs across the US. Malcolm-Wiley studied economics at Harvard and is a licensed mortgage broker.

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    When you buy a house, your credit score plays a huge role. If your credit score (AKA your FICO score) is low, fixing that credit score is one of the first steps toward qualifying for a mortgage and buying a home — maybe the first step. 

    Your credit score is one of the biggest factors lenders consider when they decide whether or not to give you a mortgage loan. In most cases, a low credit score nets you a higher interest rate and therefore a higher monthly payment, and a very low credit score can make it challenging to get approved for a loan at all.

    Fortunately, improving your credit score so you can buy a house isn’t complicated. Mostly, it just requires some consistent work toward a few strategic goals.

    Get into a home sooner with down payment assistance 

    Once your credit score is loan-ready, the next step is building up your down payment fund. Unlike building your credit score, you don’t have to do this alone. Down payment assistance can give you thousands or even tens of thousands of dollars to make a larger down payment and closing costs.

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    Compare local down payment assistance and find a mortgage, fast.

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      Disclaimer: This article is for informational purposes only and should not be considered as legal or financial advice. Please consult an attorney, mortgage lender, or CPA for guidance on your specific situation.

      How your credit score affects mortgage rates

      If your credit score is high enough to qualify for a mortgage loan, that’s good enough, right? Well, not exactly.

      Lenders look at your credit score as a sort of sliding scale that tells them how risky it is to loan you money. A higher credit score tells them that you’re more likely to make all your payments on time and won’t default on your loan. A lower credit score tells them the opposite.

      A credit score that just meets the minimum standard to qualify for a loan indicates that the risk of loaning you money is acceptable, but it’s still risky. As a result, you’re generally offered a loan at a higher mortgage interest rate. This means the lender charges you more money for the loan to compensate for the risk.

      If your credit score is above and beyond the minimum qualifying credit score, the lender will often give you a loan with a lower mortgage interest rate, because they believe there’s less risk involved and therefore don’t need to get paid more to shoulder that risk.

      Example: Improving your mortgage interest rate by half a percent

      Loan amount$360,000$360,000
      Loan term30 years30 years
      Interest rate7.5%7%
      Monthly payment
      (principal & interest only)
      $2,517$2,395
      Monthly savings$122
      Total paid over life of loan $906,352$862,308
      Savings over life of loan$44,044

      **These numbers include principal and interest only. They do not include property tax or homeowner’s insurance, since these costs vary.

      As you can see from the chart above, even a small improvement to your mortgage interest rate can significantly reduce the amount of interest you pay. If you are able to increase your credit score to qualify for a lower interest rate, it could save you a lot of money over the long term. 

      This means increasing your credit score can have a huge return on investment, especially since it’s not terribly difficult to do.

      7 ways to improve your credit score before you buy a house

      Very generally, improving your credit score to buy a house is a matter of establishing good financial habits. Your credit report essentially gives lenders a snapshot of how you handle your money. If you have good financial habits, it will show in your credit score.

      Here are ten things you can do right now to improve your credit score before you buy a house. 

      1. Pay your bills on time

      On-time bill payments have a major impact on your credit score. Even a missed payment or two will have a noticeable impact on your credit score, and late payments can stay on your credit report for a long time, thus impacting your ability to buy a home long after the late payment occurred.

      However, making all your payments on time is a relatively low-effort way to keep your credit score as healthy as possible. Here are a few suggestions to try: keep a budget calendar, set payment reminders, and leverage automatic payments on your credit cards and other bills to avoid paying late. 

      If you do miss a payment, pay it as quickly as possible, then call the company to check if this will still be reported to the credit bureaus. Payments which are less than 30 days late will often not get reported to credit bureaus. 

      Even if you do miss a payment by 30 days or more, it’s worth calling and asking if they would be willing to stop reporting the missed payment once you’ve paid your balance.

      2. Keep credit card balances low

      Your credit utilization is another big ticket item in calculating your credit score. Your credit utilization rate is a measurement of how much of your available credit you’re using. For example, if you have a $10,000 credit limit on a credit card and your balance on that card is $5,000, your credit utilization is 50%.

      A lower credit utilization rate is better, because it means you have less debt. 

      However, if you really want to be a credit score all-star, avoid carrying a balance on your credit cards at all by paying off the statement balance before the billing cycle ends each month. This has the benefit of keeping your credit utilization low regardless of when your credit score is checked.

      If you have a high credit utilization rate right now, don’t worry. You can make an impact on this pretty quickly. Set up a budget to start paying more than you spend on the card each month, even if it’s a small amount. 

      This will soon make a difference on your credit score, since your credit utilization gets checked each month. As soon as your credit utilization goes down, your credit score goes up.

      3. Increase your credit limits

      Asking the credit card company to increase your credit limit will immediately decrease your credit utilization rate, which can quickly increase your credit score. 

      However, it’s worth noting that many financial experts do not recommend this tactic to increase your credit score until you’ve set up a good system for making all your payments on time and paying down the balance on your credit cards.

      If you increase your spending limit, then proceed to spend all that new available credit, it makes your financial situation worse, and could end up lowering your credit score.

      But if you’re in the habit of paying down your credit balance or carrying no balance on your credit cards, raising your credit limit can give your credit score a quick boost.

      4. Get credit for all your on-time payments

      Even though on-time payments are a big deal for credit calculations, not all payments get reported to credit bureaus by default. Payments for things like rent, utilities, and streaming subscriptions are usually not reported, but enrolling in a service like Experian Boost adds these payments to your credit report. 

      In the short term, this only works to immediately boost your credit score if you have a few years of payment history, since that payment history will immediately be reported to the credit bureaus. But even if you don’t have a long payment history for rent, utilities, and the like, reporting these payments will improve your credit score over time. 

      Either way, it can’t hurt to have all your on-time payments go toward building your credit score, especially since a service like Experian Boost is free.

      5. Correct credit report errors

      It’s possible for mistakes to end up on your credit report, so you could have negative marks on your credit report without even realizing it. You can get one free credit report each year from all three credit bureaus at AnnualCreditReport.com.

      It’s worth doing this to check for mistakes. If there is an error, call the credit reporting agency and get it corrected. You’ll have to gather the materials which prove the information is an error, but it’s worth it to remove any incorrect information.

      6. Clear collection accounts

      If you miss a payment and never pay it, the bill often gets sent to collections. Having an account in collections is a very severe mark on your credit report. 

      Additionally, you can be sued over debt which is in collections. So it’s wise to square the issue up as quickly as possible. Once you paid the debt, call the collection agency and ask them if they would be willing to stop reporting the debt now that you’ve paid it.

      7. Get a secured credit card

      If you don’t already have a credit card and are nervous about getting one, a secured credit card is a good middle ground that helps you improve your credit score without the risk of taking on extra debt.

      A secured credit card is quite similar to a debit card. You make a deposit on the credit card, and that deposit becomes your credit limit. That way you can’t get yourself into a tight spot with credit debt, because you already have the cash on hand to pay. 

      A secured credit card is a good idea if you have little or no credit history or if you’re working to repair your credit score. It has a minimal impact in terms of increasing your credit limit and decreasing your credit utilization rate, but it does help you build a history of making on-time payments and keeping your credit card balances low.

      What is considered a good credit score for buying a house?

      Generally, lenders assess credit scores like this:

      • 740 or higher = excellent credit
      • 700 to 739 = good credit
      • 630 to 699 = fair credit
      • 629 or below = poor credit

      A general rule established by mortgage industry lenders is that 680 is the cutoff point for qualifying for standard mortgage loans, and anything above 700 qualifies you for the best interest rates.

      Additionally, most lenders only adjust the interest rate if your credit score changes by 20 points or more. So, if your credit score increases from 680 to 700 or from 700 to 720, you’ll likely get offered a lower interest rate.

      For most people, working toward a credit score above 700 is a good goal for getting a lower interest rate on a mortgage loan.

      How long does it take to build enough credit for a good mortgage rate? 

      If you’re starting out with no credit, meaning you just got your first credit card and are starting to make payments that get reported to credit bureaus, you can build enough credit to qualify for a mortgage loan potentially as quickly as six months. 

      However, building that amount of credit would be just enough to qualify for a loan, not enough to get the best interest rates. If you’re diligent and make a few strategic moves to maximize your credit utilization, you could build enough credit to get the best mortgage interest rates in one to two years, starting from scratch.

      If you’re rebuilding your credit from some past mistakes, it can take up to a few years to get your credit back in shape. That’s because certain derogatory items stay on your credit report for a specific amount of time, even after you’ve corrected the issue.

      How can you build your credit score faster? 

      Believe it or not, there is a way to build your credit very quickly, and you can automate the entire process if you want. It involves a few credit cards, autopay, and a few phone calls.

      If you don’t have any already, apply for a few credit cards. Don’t go crazy, because even with a good system it can get messy if you’re managing too many cards. Two to three credit cards is ideal for most people.

      Set up automatic payments on all of these credit cards, but make sure you pay off the balance every month, so you never have a balance on any credit card from one month to the next.

      If you’re concerned about overspending on your credit cards, pay one small bill every month with each card, and let autopay handle keeping your credit card balances at zero.

      After you’ve been making your payments reliably for three to six months, call the credit card companies and ask them to raise your credit limit on the cards. 

      You can ask for another credit limit increase after a year or so. Once your credit limit is about as high as the credit card companies will allow, you’ll have a ton of available credit, low credit utilization, and six months to a year of timely payment history. That’s just about the best case scenario for your credit score.

      At this point, your credit score will likely be high enough to qualify for a mortgage loan (assuming you’re not rebuilding from bad credit), and it might even be in the low 700s, which is right where you want to be for getting lower interest rates.

      You could fine tune your credit even further by getting a credit builder loan or maybe adding another credit card to your system. However, many financial experts say you’re better off investing that time, effort, and energy in saving up a down payment and shopping for the best deal on a house.

      If you already have credit card debt, paying off your credit cards is the fastest way to build your credit score to buy a house. If you’ve been making your payments on time, reducing your credit usage will have an immediate impact on your credit score. 

      Is it possible to raise your credit score significantly in 30 days?

      It’s possible to raise your credit score meaningfully in 30 days. However, it’s challenging. It’s worth noting that how much you can increase your credit score in 30 days depends on what your credit score is right now.

      It’s much easier to make big gains when your credit score starts from a lower point. For instance, going from 580 to 680 is easier than going from 620 to 720. 

      If your credit score is on the low end, you can significantly increase it in a month by paying off credit card balances, increasing your credit limits, or both. Using a payment reporting service to report rent and other such payments will net you even more credit points. 

      There’s no guarantee that doing this will get you a 100 or 200 point increase, but it will significantly raise your credit score, and you could do it in 30 days.

      Mortgages where credit score is less important

      Not every mortgage loan weighs credit scores the same. Loans backed by the FHA, VA and USDA take your credit score into account, but a low credit score isn’t a deal breaker in the same way that it is for conventional loans. 

      FHA loans: It’s possible to qualify for an FHA loan with a credit score as low as 500.

      VA loans: VA mortgage loans technically don’t require any minimum credit score. However, lenders providing VA backed loans prefer a credit score of at least 620.

      USDA loans: Loans backed by the USDA typically require a credit score of 640 or higher. It’s worth nothing that USDA loans are designated for people in rural areas. 

      So, even if you don’t have great credit and can’t improve it right away, there are a few options that might help you get a loan sooner rather than later.

      How down payment assistance can help you buy a home sooner

      Although building credit is a major part of buying a house, it’s just the first step. Saving up for a down payment is the next step. Fortunately, there are down payment assistance programs available to help first-time home buyers make a larger down payment and get into a home sooner.

      Stairs Financial helps with this.

      Stairs Financial matches your information up with a huge database of loan options offered by trusted lenders. You get a targeted list of loans and any down payment assistance programs for which you may qualify, making it easy to compare down payment assistance options side-by-side, apples-to-apples.

      You also get access to knowledgeable lenders who understand the nuances of your specific down payment assistance program, so you can reduce the headaches of buying a home and ultimately get the most benefits possible.

      Learn more about your down payment assistance options.

      Find up to $15,000 towards a home 🏠

      Compare local down payment assistance and find a mortgage, fast.

      Where do you want to buy?
        Search by ZIP code, address, city, county, or neighborhood
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