How to Repair Your Credit to Buy a House

This post is sponsored by Lexington Law Firm. All thoughts and opinions are my own.

Are you considering applying for a mortgage soon or within the next year? Having just bought a house, I know the process can be tedious and it’s best to start planning in advance if you can’t.

One of the biggest issues that can hold you back from getting a new mortgage is a low credit score. Depending on what type of loan program you’re going for, you could have to meet specific minimum credit score requirements.

Even if you do get approved, having a lower or average credit score can often lead to a higher interest rate which means you’ll pay more on your house over the life of your loan.

If you’re looking to buy a house and your credit score is low, getting credit repair is a solution that will allow you to obtain a mortgage and lock in some of the lowest interest rates on the market.

Here are some key ways to get your credit ready to buy a house.

Start Monitoring Your Credit

You want to start by monitoring your credit so you know exactly what your situation is. Monitoring your credit will allow you to better pinpoint the key factors that have led your score to drop so you can start fixing them.

My husband and I started monitoring our credit for at least two years before we decided to buy a house and it paid off. His credit wasn’t as good as mine but we wanted to be co-borrowers.

I knew that lenders would look at his lower score and factor it into the loan terms so I wanted to make sure we both had great scores.

You may want to request your credit scores and full reports from the three main credit bureaus. You can consistently monitor your credit online and this won’t hurt your score.

Fix Any Discrepancies

As you go through your credit report with a fine tooth comb, you may notice some errors or discrepancies that need to be addressed. It’s better if you catch these errors before mortgage lenders do so if you know you paid off an account but your report says otherwise, for example, you’ll want to make sure that gets updated.

Going through a credit report and filing disputes can seem like a daunting task to some so you can do it yourself or work with a credit repair company like Lexington Law.

This process is super important as you’re on the road to repairing your credit so if you’re not sure how to go about it, definitely consider working with a professional in the industry like Lexington Law.

Pay Off Your Debt

Maybe I’m just a money nerd, but I wanted to have as little debt as possible at the time we bought a house. Sure, we’d be adding more debt with a mortgage, but mortgage debt is the best type of debt in my opinion.

It’s often low interest and you can build equity as your house becomes an asset. Other types of debt like credit card debt, car loans, and student loans often just hold you back from financial success. Plus, the monthly payments eat up your disposable income.

Another important factor when applying for a mortgage is the debt-to-income ratio. Lenders don’t like to see that you have a ton of debt when compared to your income because it makes you look like a risky borrower who may default on your mortgage.

Plus, having high debt balances can just drive your credit score down. One of the easiest ways to boost your credit score quickly is to pay off your existing debt.

When I paid off my car loan and student loans, my credit started climbing and I freed up a lot of money since I didn’t have to make those monthly payments anymore. Choose a debt you want to pay off and throw everything at it. Lower your expenses and increase your income so you can make extra payments. Then, move on to the next account.

This is the strategy we took when my husband paid off his car loan right before we started getting serious about doing a mortgage preapproval. We lived simply and stuck to our budget for a while and he drove for Uber on the side to make extra money to throw towards the debt.

Continue to Pay Your Bills Ontime

You’ll want to get out of the habit of paying bills late if you want to rebuild your credit so you can buy a house. One of the most important factors that contribute to your credit score is payment history.

For regular utility bills or your phone bill, you may not be rewarded for making on-time payments but your credit score will suffer if you start missing payments.

Late or missed payments makes you look unreliable in the eyes of lenders and your score will reflect that. Using a credit card or a small credit builder loan is a great way to build your credit by creating a positive payment history.

You can start with one credit card or a secured card and spend a small amount then pay the bill off in full monthly. Those payments will be reported to the 3 major credit bureaus each month and thus help improve your credit score.

Lie Low and Don’t Apply For New Credit

Once you start to see your credit score improve, you won’t be home free that quickly if you’re trying to buy a house. During the preapproval and application process, you don’t want to apply for new credit or take out any new loans.

Financing a new car or furniture when you’re trying to buy a house is a big NO. The extra inquiries can have a negative effect on your credit and cause confusion among your lender and underwriter who may ask you to provide more paperwork to explain the purchase.

Buying a house can be an exciting milestone but you want to be financially savvy about it. If you’re getting a mortgage, having a great credit score should be a MUST on your requirement list. Keep these steps in mind if you’re looking to repair your credit so you can own a new house you’ll love.

Have you ever had to repair your credit before buying a house? If you’re in the process of doing so, which one of these steps are you focused on now?