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How to Fix Your Credit to Buy a Home in 6 Months

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It’s simple to improve your credit score. Generally speaking, the most well-known way to fix your score is to pay down your balances and begin making on-time payments each month. However, when you’re buying your first home, you may need to increase your score quickly, so here are steps you can take to fix your credit score in six months. 

To buy a home, you don’t need excellent credit. You only need qualifying credit.

This article explains how credit scores work, what matters to your credit score and what doesn’t, and how to fix your score to buy a home.

How Are Credit Scores Calculated?

Credit scores are math formulas based on a person’s borrowing patterns and history of paying back their bills.

Different businesses treat credit scores differently. In mortgage, credit scores represent the probability that a homeowner will make on-time payments to a lender for the next 90 days. Ninety days is significant because, after 90 days of non-payment, lenders reserve the right to repossess a home. This legal process is known as foreclosure.

The mortgage credit score algorithm produces a numerical output between 300-850, where 300 represents the highest risk of non-payment and 850 represents the lowest risk of non-payment.

Lenders bucket credit scores by number.

  • Excellent credit is 740 or higher
  • Good credit is between 680 and 739
  • Average credit is between 580 and 679
  • Below-average credit is between 500 and 579
  • Poor credit is below 500

To qualify for a mortgage, home buyers must have a credit score of 500 or higher.

Learn more about how to buy a house with low credit.

What Goes Into A Credit Score?

More than 50 different inputs go into a credit score, grouped into five categories.

  1. Your payment history
  2. Your borrowing habits
  3. Your track record
  4. Your recent attempts to secure more credit
  5. Your experience with different credit types

The credit score formula assigns various weights to each category and also weights for recency. Events from the last six months affect scores more than events from two years ago because events of the previous six months predict the next 90 days better than events from some time in the past.

Therefore, the best way to improve your credit rating is to begin practicing good credit habits today and wait. 

Within six months, you’ll see significant improvements in your credit score.

Some notable traits don’t affect credit scores, including:

  • age
  • gender
  • race
  • religion
  • national origin
  • marital status
  • political affiliation
  • medical history
  • criminal record
  • whether you receive public assistance
  • salary
  • employer
  • job history

Credit scores are merit-based only, and anyone can make their credit perfect.

imrpove credit

7 Ways to Fix Your Credit Score Within 6 Months

In the United States, there are three major credit bureaus – Experian, TransUnion, and Equifax. The three bureaus make their versions of the credit rating formula with slight variations in weighting.

Their models are proprietary, but we have a firm grasp of what makes a credit score strong and how to improve your credit through patent applications and public data. 

To fix your credit to buy a home, follow these seven actions.

1. Get Current With Your Bills

Why it works: Payment history makes up 35% of your credit score.

Payment history is your track record of paying back creditors, including lenders, lessors, and credit card companies. On-time payments are best, and an occasional 30-day late payment inflicts minimal damage. 60-days late or longer, and bills in collection are more damaging.

How to improve: Get current on your bills, then continue making on-time payments each month. After three months, you’ll notice your credit score improving. After six months, your score can recover almost in full. If you must prioritize, pay your minimum credit card payments, auto loans, and student loans first. Then, pay your entire credit card balance and other bills.

2. Raise Your Credit Limits & Reduce Your Credit Balance

Why it works: Amount owed is 30% of your credit score. 

The amount owed is how much credit you can use to how much credit you’re using. It’s a percentage – not a dollar amount. 

Using all of your available credit is known as being “maxed out.” The credit bureaus like consumers who use less than one-third of their available credit. Credit utilization over 50% can hurt your score.

How to improve: Higher limits reduce your credit utilization ratio. First, pay down your individual credit card balances until you’re using less than one-third of your available credit limit on each card.

Then call your credit card issuers and request an increase to your credit limit. When asked, decline the option to have your credit score checked as part of the increase and accept whatever new limit you get.

3. Refrain From Opening New Credit Cards and Loan Accounts

Why it works: New credit is 10% of your credit score. 

New credit is the new accounts you or somebody else opened in your name. New credit includes auto loans and leases, student loan refinances, and credit cards. It also includes store charge cards that give 10% off at the register. The credit bureaus treat new credit negatively because it decreases users’ ability to pay other bills.

How to improve: Don’t use your social security number to apply for new credit in the months leading up to your home purchase. Pre-approvals are accepted as part of the home-buying process and have little impact on your score. New credit and store charge cards can be harmful.

4. Keep Existing Credit Accounts Open

Why it works: Consumer credit mix is 10% of your credit score.

Consumer credit mix is the collection of credit accounts that make up your credit history. Credit types include mortgages, auto loans, student loans, personal loans, and credit cards. The credit bureaus use your consumer credit mix to see how you manage different account types as part of your broader credit profile. You’ll naturally maintain a healthy credit mix by keeping your other accounts open.

How to improve: Your work isn’t over when you reduce a credit card balance to $0. Keep the credit line open, spend a small amount on it monthly, and pay the bill in full when the invoice arrives. 

With as little as $5 per month, you can force your creditor to tell the bureaus that you borrowed money and paid it back on time. This is better than closing the account and watching it wither or opening new accounts.

5. Fix Your Credit Report Errors

Why it works: Errors on your credit report can lower your score by 100 points or more.

According to a recent Consumer Reports study, one-third of U.S. consumers have errors in their credit reports which harm their credit scores. Credit report errors can link to criminal acts such as identity theft, but more often, they’re common mistakes like:

  • A credit card company isn’t reporting your credit limit
  • A paid-off student loan still says it’s active
  • A charge card reported a late payment by mistake

You may also find your credit report merged with someone else’s with a similar name or social security number. 

How to improve: You’ll get a copy of your credit report when your mortgage is pre-approved. This doesn’t affect your credit. Instead, it can help you find mistakes. Review the information and make the fixes required. You can correct most errors easily online. 

Learn more about how mortgage pre-approvals affect credit score.

6. Start a Credit Builder Account

Why it works: Sometimes, you want a helping hand to strengthen your credit.

Consumers can use Credit Builder companies to regain control of their credit score and reporting. Credit Builder companies increase the number of positive borrowing experiences in a person’s credit history and help build up savings.

How to improve: Self.inc is one of the largest credit-building companies. 

7. Be Patient

Why it works: Length of credit history is 15% of your credit score.

Length of credit history is the average number of years you’ve managed your credit accounts. Longer credit histories contain more information, making them more predictive of future behavior. Consumers with short credit histories rarely earn ultra-high credit scores because they lack a track record.

How to improve: There is no substitute for time, which improves your length of credit history rating. However, you can help yourself by leaving aged credit accounts open – even after you’ve paid them off! Make purchases on your current dormant credit cards at least once monthly. Even small purchases of $5 are beneficial.

What Credit Score is Good Enough to Buy a House?

500 is the minimum credit score required to buy a home and mortgage it. As a buyer’s credit scores go up, its borrowing options increase.

According to official mortgage guidelines, the minimum credit score requirements for the four government-backed loans are:

  • Conventional Mortgage: 620 credit score
  • FHA mortgage: 500 credit score
  • VA mortgage: 580 credit score
  • USDA mortgage: 620 FICO

98% of first-time home buyers use government financing. The remaining 2% uses Jumbo Mortgages or some other non-government loan, neither of which posts minimum credit score requirements. 

Generally, jumbo loans require a higher credit score than a government-backed loan. 

Learn more about the credit score needed to buy a house.

How Long Does it Take to Build Credit to Buy a House?

Many home buyers can rebuild their credit to buy a home in just six months. And, with every month after that, scores improve more.

There’s no limit to how much you can improve your credit score. Our credit history, age of accounts, and mix of credit types are in your control, and your spending is, too. 

Buyers with judgments, liens, or major delinquencies may make repairs harder, but they are still effective. Consumers with multiple tradelines can expect their credit to build quickly. Consumers who lack credit experience may take a little longer. In all cases, though, two years is all that’s needed. 

Our Advice: Check your credit score and make as many improvements as possible

When you’re buying your first home, credit scores open doors. Stronger credit gives access to more mortgage products and lower mortgage rates.

When your credit score is high, you can buy a bigger home and get a lower payment. Start planning for credit early and use time to your advantage. 

As part of your mortgage pre-approval, you’ll get a copy of your credit report. Review the information and make changes to power up your score.

Get pre-approved for a mortgage today.

Dan Green
Dan Green

Dan Green is a former mortgage loan officer and an industry expert. He's appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.

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