How To Fix Credit To Buy a House: Steps That Actually Help

You’ve found the home of your dreams, but your credit score stands in the way of approval. Don’t sweat it. If you’re wondering how to fix my credit to buy a house, the good news is that there are several steps you can take to improve your score and increase your chances of getting that mortgage approval.

Key Takeaways

• Your credit score directly affects what mortgage you qualify for and how much you pay. Conventional loans typically need a 620 score, Federal Housing Administration (FHA) loans need 580, and jumbo loans need 680.

• A credit score of 760 could save you $200 to $300 a month on a $300,000 loan compared to a 620 score.

• To build your credit score, you can pay every bill on time, keep card balances under 30% of your limit and dispute errors on your reports from Experian, Equifax and TransUnion.

• Start three to six months before buying a house. Pay down balances aggressively, skip new credit applications, hold off on big purchases and bundle all mortgage inquiries within a 45-day window so they count as one.

Summary generated by AI, verified by MoneyLion editors

Understanding Your Credit Score

Your credit score is a key factor when applying for a mortgage. It’s based on five components:

• Payment history → 35%: Make all payments on time.

• Amount owed → 30%: Pay down your debts.

• Length of credit history → 15%: Do not close older accounts.

• Number of new credit lines → 10%: Try to limit the number of hard inquiries on your credit report.

• Credit mix → 10%: Have a wide variety of credit — loans, mortgage, credit cards, etc.

To get favorable mortgage terms, aim for a score above 700. But if you’re not quite there yet, don’t worry — there are ways to fix your credit score before applying for a mortgage. Improving your score can lead to lower interest rates and better loan options.

Which Credit Scores Do Mortgage Lenders Use?

Mortgage lenders generally use FICO scores through the three major credit bureaus. They average the following:

• Experian: FICO 2

• Equifax: FICO 5

• TransUnion: FICO 4

Why Credit Matters When Buying a House

Your credit score is an important factor that affects many aspects of your financial life. It’s more than just a number since it has multiple repercussions.

• Higher credit score = lower interest rates. For example, a 760 credit score will likely get you a 6.5% rate, while a 620 credit score will get you a 7.5% rate. You end up saving monthly $200 to $300 on a $300,000 loan.

• Higher credit score = lower monthly payment. With a higher credit score, you can pay less monthly and dedicate those funds to either saving or paying off another debt.

• Higher credit score = easier approval process. Lenders are likely to approve you with a higher score because it demonstrates creditworthiness.

• Higher credit score = lower down payment. You may have to make a smaller down payment with a higher credit score.

10 Ways To Improve Your Credit Score To Buy a House

Credit building is a journey, not a sprint. Whether you’re trying to figure out how to fix your credit fast to buy a house or looking for long-term strategies, these steps will set you on the right path.

1. Check Your Credit Report for Errors

Start by pulling your credit reports from the three major bureaus – Experian, Equifax and TransUnion. Correct any errors that could be dragging down your score, such as incorrect debt amounts or accounts that don’t belong to you.

2. Pay Your Bills on Time

Payment history is the largest factor in your credit score, so paying every bill on time is essential. Set up automatic payments or reminders to avoid missing any deadlines.

3. Pay Off Your Debt

If you’re serious about credit repair to buy a house, focus on paying down existing debt. It’s recommended to keep your credit utilization under 30% of your total available credit.

4. Reduce Your Credit Card Balances

High balances on credit cards can hurt your score. Work on paying them down — ideally, paying off the full monthly balance. This can be one of the fastest ways to help raise your credit.

5. Get a Secured Credit Card

A secured credit card can be a powerful tool for repairing your credit. It allows you to build credit with a small deposit as your credit limit.

MoneyLion can help you find and compare credit cards that are tailored to your needs and preferences:

6. Become an Authorized User of a Credit Card

Ask a family member or friend with good credit to add you as an authorized user on their credit card. This can help boost your score by benefiting from their positive credit history without needing to apply for a card.

7. Consider a Credit-Builder Loan

A credit-builder loan is a small loan designed for those looking to build or repair their credit. Regular, on-time payments can help raise your score while also allowing you to save money.

8. Obtain a Credit Limit Increase

If your credit is improving, request a credit limit increase on your existing cards. This reduces your credit utilization ratio, which can lead to a score boost.

9. Hold Off on Applying for New Credit Accounts

Opening too many credit accounts at once can hurt your score. Lenders may see this as risky behavior, so hold off on new applications for at least 3 to 4 months before applying for a mortgage.

10. Avoid Making Major Purchases

Large purchases that increase your debt could negatively impact your credit score. Hold off on big-ticket items like cars or expensive appliances while working on credit repair to buy a house.

→ Find out: Does Refinancing Hurt Your Credit?

How To Dispute Credit Report Errors

It takes some prep to dispute your credit report errors. Here’s a checklist:

• Download your credit reports: You can get your credit reports for free every 12 months from AnnualCreditReport.com.

• Review your credit reports: Look for errors in your credit reports, including accounts that aren’t yours, incorrect balances and missed payments.

• Gather your documentation: Gather any receipts or other proof that provides evidence that the error exists.

• File your dispute: You can typically get a response from the credit bureaus within 30 days.

• Review your results: Check your updated report to see if the correct updates have been made.

How Long Does It Take To Fix Credit To Buy a House?

Some credit improvements can happen relatively quickly, while larger issues may take longer to recover from before buying a house. Here’s what to expect:

• The timeline is variable: It could take as few as three months or as many as six months. Depending on when you started, it could take as long as a year.

• Focus on quick wins: If you pay down debt, it can quickly boost your credit score.

• Dispute errors: Disputing mistakes on your credit report can help your score.

• Be consistent with payments: Making timely payments can steadily boost your score.

• Stay patient: Don’t expect overnight improvements. Continue to stick with a plan that involves timely payments and reducing debt.

Mortgage-Ready Credit Checklist

Want to make sure you’re mortgage-ready? Keep these points in mind:

1. Verify your scores from the three credit bureaus.

2. Review your scores and make sure you’re at a minimum of 620.

3. Check your debt-to-income (DTI) ratio.

4. Keep credit card balances low.

5. Audit for errors.

6. Make all mortgage inquiries within 45 days of your initial inquiry.

Key Terms

• Credit score: A three-digit number that shows how likely you are to repay borrowed money based on your credit history.

• Credit report: A record of your credit accounts, payment history and other borrowing activity that lenders use to evaluate your application.

• Credit utilization ratio: The percentage of your available revolving credit you’re using. Lower utilization can help your credit score.

• DTI ratio: Your total monthly debt payments divided by your gross monthly income. Lenders use it to measure how much debt you can handle.

• Payment history: A record of whether you pay your bills on time. It’s one of the biggest factors in your credit score.

Summary generated by AI, verified by MoneyLion editors

FAQs

Do you need credit to buy a house?

You technically don’t need credit to buy a house, but it becomes substantially harder to do so without some record. Manual underwriting may allow you a way to qualify for a house, but the process is slower and requires a substantial amount of paperwork.

What’s the minimum score by loan type?

• For a conventional loan, you need a credit score of 620 and above.

• For a VA loan, there’s no official minimum.

• An FHA loan requires a minimum score of 580 or higher.

• A jumbo loan requires a score of 680 or more.

Do multiple mortgage inquiries hurt your score?

No, not necessarily, as long as you conduct all your inquiries within a 45-day window. Credit bureaus will treat this as a single inquiry.

How long does it take to improve credit?

To boost your credit by 20 to 50 points, it may take 30 to 45 days. It can take up to two years to lessen the impact of negative events like a bankruptcy.

Ryan Peterson contributed to the reporting for this article.

Sources

• Consumer Financial Protection Bureau. 2023. "What is a credit score?"

• Consumer Financial Protection Bureau. 2024. "What is a credit report?"

• myFICO. "Understanding FICO® Scores."

• Consumer Financial Protection Bureau. 2023. "What is a debt-to-income ratio?"

• Equifax. "What Is a Credit Utilization Ratio?"