How to Fix Your Credit Score to Buy a House

By PropertyClub Team
Jul 17th 2022
Buying a house with bad credit can be challenging, but options are available if you're willing to take steps to remedy the situation. The best thing to do is to try to fix your credit score to show lenders that you're serious about improving your financial situation. So, to help you with the process, here are a few steps to improve your credit score to buy a house.

hash-markHow to Fix Your Credit to Buy a House Fast

1. Check Your Credit Reports

The first step is to check our credit report and see where the issues lie. Most lenders like to see you have a score in the high 600s but will accept scores as low as 620. You could also use a government loan program with even lower credit requirements, such as an FHA or VA loan. Knowing what is causing your score to be low is also helpful so you can adequately address the issue.

2. Pay off Any Debt

The easiest way to raise your credit score as soon as possible is to pay down as much debt as possible. Most lenders like to see your total debt not exceed 30% of your total credit and your debt-to-income ratio is 28% or lower. So, if you make $50,000 annually, you should have no more than $14,000 worth of debt. Although it may not be possible to pay off all your debt at once, the more you can pay down, the better your score will be.  

3. Dispute Any Errors

Even though credit agencies are generally accurate, that doesn't mean they're above making mistakes. It's not uncommon for data to get mixed up and for a debt, inquiry, or public record meant for someone else to end up on your credit report. So, if you notice any accounts or information you don't recognize, you should dispute it, especially if it impacts your score. The credit bureaus each have a process for disputing inaccuracies, and you can have them removed if you can prove that they were made in error.

4. Pill Your Bills on Time

Another easy way to improve your credit score is to pay your bills on time. But be sure that the bills you're paying are showing up on your credit report. Some companies report on-time payments to the credit bureaus, while others will only alert them if you miss a payment. The best way to ensure your on-time payments positively impact your credit score is to pay with a credit card and then pay it down to zero every month. If you need to, you can get a secured credit card, which is easier for those with bad credit.

5. Avoid Too Many Hard Inquiries

An inquiry occurs when an institution requests your credit report from the credit agencies. A credit inquiry can either be hard or soft. A soft inquiry isn't worth worrying about because it won't impact your score. But a hard inquiry occurs anytime a lender processes your credit as part of an application for a loan, which includes applying for a credit card, mortgage, car loan, personal loan, etc. One or two hard inquiries won't impact your credit too much. But six or more hard inquiries can do severe damage to your credit. So, avoid applying for loans all over town until you feel reasonably confident you'll be approved.

6. Make a Deal With Collections Agencies

If you have any outstanding collections, you should try to contact the collection agency and make a deal. Most companies don't go after delinquent payments themselves. Once it's passed a certain point, they will sell the debt to a collections agency that will attempt to collect. But these companies often buy the debt at a discount, so they are often open to making a deal if it's reasonable. For example, say you owe a $150 Verizon Bill that is in collections. If you call them up and offer $100 to pay it off, they may agree or meet you halfway just to recoup some of the money. The sooner you pay the bill, the sooner you'll be able to request it be removed from your credit report.  

7. Become an Authorized User

An authorized user is someone whose name is attached to another person's credit card account. If you have a family member with good credit, you may be able to convince them to add you to one of their accounts. Becoming an authorized user will boost your credit score quickly if they pay their bill on time, even if you aren't spending any of the money.

8. Hire a Credit Repair Specialist

Finally, if you're having trouble getting control of your credit on your own, you should consider hiring a credit repair specialist to help you. A credit repair specialist will be able to go over your report with you, determine where you need to improve, and give you step-by-step instructions that will help you gradually improve your score. They will also be able to negotiate settlements with past creditors for you. It will cost you some money, but it can often be easier than figuring it out on your own, especially if you have multiple issues with your current score. Working with an expert will help you fix your credit score faster than if you do it on your own. If you are in a rush to buy a house and don't mind spending a bit of money for some help, hiring a credit repair specialist is a must. 

hash-markHow Long Does It Take to Repair Credit to Buy a House?

The exact time it takes to repair your credit to buy a home depends on how bad your score is and what's causing the issues, but on average it will take around 12 months. This will give you enough time to pay down any existing debt as well as to demonstrate that you can make on-time payments over the course of the year. 

If your credit is low because of a high amount of debt, it will bounce back as fast as you pay down the balance, as long as you don't have other issues. Whereas, if your credit score is low due to a foreclosure or bankruptcy, you may need to work on your credit for several years before applying for a loan.

It also depends on how far away you are from your credit goals. For example, if your credit score is 615 and you only need an extra 5 – 10 points to be approved for a conventional loan, it may only take a month or two to get your credit within an acceptable range.

If your credit score is 500, it will take much longer to fix it so you can buy a house. You'll need to pay off any existing debt and might also need to work with past creditors to resolve outstanding issues and remove charged-off debt. This can take many months if you do it alone, but working with a credit repair specialist can speed up the process. 

hash-markCan a Realtor Help Me Fix My Credit? 

Credit repair isn't part of a real estate agent's job description. However, that doesn't mean they can't give you some helpful pointers. Real estate agents look at credit reports every day and know exactly what lenders want to see. So, they can definitely help guide you in the right direction or point you to a credit repair specialist who can help.

But real estate agents aren't trained to repair credit and may not know the exact steps to take to help you improve your score. Some real estate agents take up credit repair to offer an additional service to clients. But don't expect every real estate agent to be able to fix your credit for you. 

hash-markHow Long Does It Take to Build Credit to Buy a House? 

The exact time it takes to build credit to buy a house will depend on your situation but plan on at least six months to a year. If you have no credit, a lender will likely reject you or hit you with an exorbitant interest rate. So, in most cases, it's smarter to wait and establish some credit before you begin looking for homes. 

One month of on-time payments isn't going to help you much, so you should plan on committing at least six months to a year to establish a solid payment history if you have no credit at all. Many people choose to rent while establishing a credit history so that when it's time to apply for a loan, you already have a head start.

hash-markFixing Credit to Buy a Home Bottom Line 

Having a bad credit score doesn't mean your chances of owning a home are gone forever. It may take effort and patience to rebuild your score enough to be approved for a loan. But if you're diligent and work hard to establish a positive payment history, you'll eventually find a lender willing to work with you.