How Can I Raise My Credit Score to Buy a House

In this blog, we will cover and discuss how to improve credit scores to buy a house.  There are minimum credit score requirements to qualify for a mortgage. What is your FICO is at 400 and how to improve your credit score to buy a house? We will try to explain all possible case scenarios below.

Mortgage lenders will evaluate the following when reviewing credit on a mortgage loan applicant:

  • Credit Scores
  • Credit Payment History On Credit Report

Many homebuyers with prior bad credit can qualify for a mortgage as long as they meet the minimum credit score requirements and have been timely on all of their payments in the past 12 months. In this article, we will cover and discuss how to improve consumer credit scores to qualify for a mortgage.

Ways On How To Improve Credit Scores To Buy a House

Ways On How To Improve Credit Scores To Buy a House

Credit Scores fluctuate month to month, especially with consumers with revolving debt. Consumers with high balances on their credit cards will have lower credit scores. However, if they pay down their credit cards to under 10% balance of their credit limit, they will have maximum credit score optimization.

Do Not Max Out Your Revolving Credit Accounts

It is best to pay down all credit card balances to under 10% but not have a zero balance prior to applying for a mortgage. A low credit score can be a hurdle when it comes to getting a mortgage loan approval. There are very simple ways to improve credit scores without much effort. For those who have no credit or did not have been active in the past two or three years, the best way to boost credit scores is to establish credit with at least three creditors.

The Three Major Credit Reporting Agencies Used By Mortgage Lenders

Creditors and government agencies report payment history and public records of consumers to the three major credit bureaus:

  • TransUnion
  • Equifax
  • Experian

Credit cards, automobile loans, revolving account creditors, mortgages, and other installment loans are all posted on credit reports.

Keeping Credit Card Balances Under 10% Utilization Ratio Is How to Improve Credit Scores 

Consumers with revolving accounts which are credit cards should pay down their credit card balances for maximum credit score. The lower your credit card balance, the higher your credit score potential. Maxed-out credit cards are what plummets credit scores. However, the drop in credit scores on a high-balance credit card is only temporary. Once you pay the credit card balance down, your credit scores should go back up.

How To Improve Credit Scores To Buy A House: Monitoring Credit Report For Accuracy And Errors

Credit disputes are not allowed during the mortgage process with the exception of medical collections and non-medical collections with zero balances. If there are errors on a credit report, it should be done way in advance before applying for a mortgage.

How To Improve Credit Scores To Buy A House Is By Checking For Errors on Credit Reports

How To Improve Credit Scores To Buy A House Is By Checking For Errors on Credit Reports

If there are errors on the credit report and the mortgage process cannot be stalled, then do not dispute any creditors until you talked to a loan officer. The loan officer can do a rapid rescore as long as the borrower has proof that the credit report is incorrect with errors or credit card balances have been paid down but not yet reported.

How To Improve Credit Scores To Buy A House Is Not Disputing Help Delete Derogatory Credit?

Recent derogatory items reported on the credit reports will drop credit scores. However, older negative items that are over 2 years old have little to no effect on credit scores. Under HUD Guidelines, Borrowers do not have to pay off outstanding collections and charge off accounts to qualify for FHA loans.

Credit Repair Can Do More Damage than Good During the Mortgage Process

Credit Repair is not recommended during the mortgage process. Consumers who want to pay off outstanding collections, contact creditors or collection agencies directly. See what they offer and counteroffer them back. Hopefully pennies on the dollar but make sure that part of the negotiation is that they need to remove the negative item from a credit report or else tell them there is no deal. This is called pay for delete. Most creditors or collection agencies will remove the negative item as part of the negotiation. Make sure that everything is in writing. Deleting recent collections can improve credit scores.

How To Improve Credit Scores To Buy A House: Credit Disputes Are Good If You Have Supporting Documentation and Proof

If your creditor verifies that a derogatory credit item is valid, the item will remain on the credit report.  Credit Bureaus need to remove derogatory credit or credit in dispute if creditors or collection agencies do not validate the debt in dispute within 30 days. Always check for errors on credit reports. Statistics show that more than a third of all credit reports contain errors. These errors will cost consumers paying higher interest rates and might even cause employment opportunities and/or promotions since a large percentage of employers to run credit background checks as part of their hiring process.

The fastest and Easiest Way to Rebuild And Re-establish Credit Is With Secured Credit Cards

Consumers who do not have credit or did not have credit for several years can start establishing credit with secured credit cards with a minimum $500 balance.

  • 3 Secured Credit Cards are recommended
  • Each one of those secured credit cards can boost credit scores by 20 to 50 points
  • Make sure all of the monthly bills are paid on time

How To Improve Credit Scores To Buy A House When You Have Bad Credit

How To Improve Credit Scores To Buy A House When You Have Bad Credit

In the following paragraphs, we will discuss and cover how to increase your credit scores to qualify for a mortgage with bad credit. We will also show you in a step-by-step format how to rebuild and reestablish your credit after bankruptcy, foreclosure, and periods of bad credit. FHA loans are the best mortgage loan program for bad credit and low credit scores.

How To Improve Credit Scores To Buy A House During a Booming Housing Market

The housing market has been skyrocketing year after year for the past seven years. We now have one of the highest home prices in the history of the United States.  Many folks with families decide to buy homes versus renting a home. If you have made any major purchases in your life, you are more than likely familiar with your credit score.

The Importance of Having Good Credit

When attempting to finance a vehicle, home, recreational merchandise, appliances, or even applying for a job, your credit score can play a major factor in what you qualify for. If you have been following our website, you are aware that CLN are experts with lower credit scores in mortgage lending. Our team of highly skilled mortgage professionals is experts in credit scoring. In this blog we will detail why credit scores are important, a few tips to raise your credit score, and some basic credit requirements for mortgage lending.

How To Improve Credit Scores To Qualify For An FHA Loan

If you have good credit, this article may not provide you with much information. If your credit has gone through some turmoil, then this article is for you. If you have good credit, you need to do everything in your power to keep it that way. You can destroy your credit score very quickly and it takes a long time to rebuild. Depending on your situation, rebuilding your credit can take years. When your credit is in the dumpster, the time you spend rebuilding your score is taking precious years away in which you could be building wealth with assets such as a home.

Understanding The History of Credit Scores When Buying a House

Let’s talk about the history of credit scores. In recorded history dating back to the early 1800s, many banks and lenders extended credit based on personal reputation. Many shopkeepers would offer secured loans by asking your friends and neighbors to vouch for your personal character. They would also ask for information such as where do you work, and how much money do you make? Obviously, these were much simpler times but if you paid your debts on time, most lenders were willing to extend you credit. As soon as you did not pay on time, this luxury went away.

Mortgage Qualification and Pricing Rates With Lower Credit Scores

Mortgage Qualification and Pricing Rates With Lower Credit Scores

Personal reputation and accountability went a long way. Modern credit scoring is a technology tool that is approximately 200 years old. Access to credit has always been a thing but having an actual score is very new. Credit scoring models are used for many life decisions including how much you pay for insurance and utilities.

Lower Credit Score Means Higher Risk for Lenders When Purchasing a House

As business became more modernized and bankruptcy laws were established, lending money became riskier. This resulted in experimental standardized credit evaluations for all citizens. Unfortunately, many of these practices resulted in unintended consequences such as “redlining”.

What Is Redlining?

Redlining is a malicious practice that would only extend credit to certain races and ethnicities. As America moved into the latter half of the 19th century, the dollar earned by wage earners was not going as far. This forced department stores and auto manufacturers to extend credit lines. At this time, the men and women in charge of evaluating a consumer’s credit were not organized into a single dominant firm and this is when we see the beginning stages of credit bureaus emerge.

Should a Lender Do a Hard Pull on My Credit When Buying a House?

As many civil rights movements happened, we eventually have the Fair Credit Reporting Act brought forth in 1970. This is a landmark piece of legislation that requires each credit bureau to expunge data of race, sexuality, disability, and also delete negative information after a certain timeframe. Now we have the three main credit bureaus which are TransUnion, Experian, and Equifax. While each of these credit bureaus has a slightly different algorithm that computes risk, they all follow very similar practices.

How To Improve Credit Scores To Buy A House: How Are Consumer Credit Scores Calculated?

How is your credit score calculated? Disclaimer,  we are not affiliated with any of the three credit bureaus and this information is generalized. For specific information, please reach out directly to TransUnion, Experian, and Equifax. Your credit score is a number based on many different factors. In the following paragraphs, we will cover and discuss a general breakdown of how your credit score is computed.

How Are Consumer Credit Scores Computed By The Credit Bureaus?

How Are Consumer Credit Scores Computed By The Credit Bureaus?

Payment history. Payment history seems to have the most impact on your overall credit score. Payment history will show your ability to pay your monthly obligations. Payment history can include a 30-day late payment, 60-day late payment, 90-day late payment, 120-day late payment.

Timely Payments in the Past 12 Months to Qualify for a Mortgage

Lack of paying on time can lead to more extreme notations on your credit reports such as collections, judgments, charge-offs, repossessions, foreclosures, or even bankruptcy. It is estimated that payment history makes up about 35% of your overall credit score.

How Lenders Calculate Debt To Income Ratio

Total debt burden. This includes your utilization thresholds, the number of accounts with active balances, the total amount owed to all of your liabilities, and the total amount paid on installment obligations. Your overall debt burden is estimated to make up approximately 30% of your credit score.

Payment History Versus Credit Scores During The Mortgage Process

The total length of credit history. The longevity of paying bills on time will go a long way. Length of credit history shows how old your accounts are and this portion of your credit score shows the average age of accounts. The age of your oldest account reporting to the credit bureaus also plays a factor. The longer streak you have of paying bills on time will only increase your credit score. Length of credit is estimated to make up approximately 15% of your overall credit score.

Types of Credit And Impact on Credit Scores During The Mortgage Process

Types of credit being used. There are numerous different types of credits such as revolving accounts or credit cards, installment loans (something where your payment is the same each month such as an auto loan), and mortgage accounts. Having multiple different accounts in good standing from the multiple different account types will increase your credit score. This section of your credit score will compute approximately 10% of your score.

Credit Inquiries and the Negative Impacts on Credit Scores During The Mortgage Process

Credit Inquiries and the Negative Impacts on Credit Scores During The Mortgage Process

Credit inquiries. Often referred to as a hard credit pull, these occur when a creditor checks your credit. While these credit pulls do fall off your report after 120 days, they can have a significant impact on your credit score. Many borrowers get hung up on the myth that pulling your credit will destroy your overall credit score.

How To Improve Credit Scores To Buy A House: Boosting Your Credit Scores

If you have a low credit score, to begin with, your score may be more impacted by a credit pull than somebody with extremely high credit. Where you will get yourself into trouble with hard inquiries is having numerous different industries pull your credit in a short timeframe.

How Multiple Hard Inquiries Can Drop Credit Scores During The Mortgage Process

For instance, if you go to a department store and take out a credit card, then head over to the auto dealership and search for a new vehicle, you now have two industries pulling your credit. If later in the week you attempt to apply for a mortgage loan, we now have three different industries pulling your credit report.

Multiple Credit Inquiries From The Same Creditor

Many industries will also pull your credit more than once. These credit pulls can add up quickly and have a significant impact on your credit score. This is why we do not suggest you pull your credit unless you are seeking a new tradeline. There are also time frames set by the Consumer Financial Protection Bureau (CFPB) for how long these credit pulls can affect your credit score. Credit inquiries make up approximately 10% of your overall credit score. As you can see, there are numerous different factors that affect your credit score.

How To Improve Credit Scores To Buy A House Prior To Applying For A Mortgage

Credit scoring and mortgage lending: Since a mortgage is typically the largest debt an American will take out in their lifetime, credit score qualifications are very important when qualifying for a mortgage. In fact, the major agencies all have their own minimum credit score requirements. Fannie Mae and Freddie Mac require at least a 620 credit score for any conventional loan program.

FHA Loans With 500 Credit Scores

FHA Loans With 500 Credit Scores

FHA can go all the way down to a 500 credit score, but you must have a 10% down payment. FHA offers a low-down-payment option for all credit scores above 580. You will then only be required a 3.5% down payment. Technically, there is no minimum credit score requirement for VA mortgage lending.

Credit Scores During The Mortgage Process Impact on Rates and Qualification

NOTE – There are other guidelines besides credit scores for each agency that must be met to qualify for a home loan. Credit scores are very important for mortgage lending because an underwriter must verify your ability to repay your monthly mortgage payment. Since your credit report shows your payment history, this helps an underwriter make their final decision.

Timely Payments in the Past 12 Months When Buying a House

Paying your bills on time is key critical for qualifying for a mortgage. We also understand that life will throw curveballs and sometimes payments are missed. Even if you have missed payments, we strongly encourage you to reach out to our team. Certain programs such as FHA mortgage lending will allow a late payment here and there.

How to Improve Credit Scores: Lenders Want To See Timely Payments in the Past 12 Months

Paying your housing and installment payments on time may be the most important. If you miss a housing payment to your landlord or your current mortgage, an underwriter will strongly weigh this into their overall decision.

How to Improve Credit Scores Before Applying For a Mortgage When Buying a House

Applying for a mortgage can be a daunting task. There are three main pillars you must address when qualifying for a mortgage. They are credit, assets, and employment. This blog will focus on the credit portion. In 1995, Fannie Mae and Freddie Mac began implementing credit score qualifications. This has created standard mortgage guidelines which will help prevent a future real estate crash as we saw back in 2008.

How to Improve Credit Scores to Qualify For High-Balance FHA and Conforming Loans

How to Improve Credit Scores to Qualify For High-Balance FHA and Conforming Loans

Besides credit, there are numerous other guidelines that must be met to qualify for a home. Conforming high balance loans have higher credit score requirements to get an approve/eligible per AUS. Same with high-balance FHA loans. In general, terms, verifying a clean payment history is the main qualification requirement. When a lender verifies your credit report and sees a clean payment history without late payments or recent collections, and a qualifying credit score, typically you can qualify for a home loan.

How to Improve Credit Scores to Qualify for a Mortgage: Should I Repair My Credit When I Buy a House?

What about credit repair? We are experts in credit reporting. However, we do not have a referral partner for credit repair. The reason we do not have a referral partner is, credit repair rarely works. The credit bureaus have made it difficult for credit repair agencies to remove items from your credit report. In fact, most credit repair companies simply dispute items on your credit report, which is something you can do by yourself (for free).

How to Remove Late Payments in the Past 12 Months When Buying a House

If you truly were late on an account, it will be very difficult to have that late payment removed. If it is a reporting error, then you have a great chance of having that account removed. The dispute process with the credit bureaus is not fun. But this is a great way to raise your credit score if there is false information reporting. If you have been following our blogs, you know we are experts with credit score requirements and do not have lender overlays on our mortgage programs. This is why we are able to help more clients than most lenders. It is important to stay on top of your credit score and there are many tools to do so.

How to Improve Credit Scores: Monitoring Credit Reports For Errors

Many banks or credit cards offer free credit monitoring services. You can also use a service such as credit karma to keep track of your score. It is important to understand that the credit scores you see from these free services are not your mortgage scores that a lender must use for qualifications. Generally, the scores you see from these free services are higher than your actual mortgage qualifying credit scores. Do not let that scare you F or deter you from utilizing these tools.

First Steps on How to Improve Credit Scores to Qualify For A Mortgage to Buy a House

If you or a family member is in the market for a mortgage loan, please reach out to our team today. We will work with you as long as necessary to make sure you qualify for the home of your dreams. We offer many loan programs that most banks do not. So, even if you have been turned down in the past, please reach out to our team to go over your options. Home values are expected to continue to rise, and homeownership is a great tool against inflation. If you are sick of being at the mercy of your landlord and increasing rents, please reach out to our team. We are available seven days a week and our team can even assist you in the evenings.


Michael Gracz NMLS 1160212 is a veteran mortgage loan officer at Nexa Mortgage LLC. Mike can help borrowers with less than perfect credit and higher debt-to-income ratios. Due to Nexa Mortgage being a no overlay lender on government and FHA Loans, Mike can structure any less than perfect borrowers' files and help them qualify for a home loan in a matter of a short time. It is not if you can qualify for a mortgage with Mike but when. Mike Gracz can be reached at 630-659-7644 or email at mgracz@gustancho.com