How to repair your credit score in 6 steps

If you want to buy a home but your credit isn’t perfect, take heart: Consistent habits can improve your credit score. Whether you need a specific credit score depends on the type of mortgage you apply for, but lenders will always look at your credit to get an overall sense of your finances. Here are six practical steps on how to repair credit score problems and get closer to homeownership.

Key takeaways:

• Your credit score is a three-digit number that tells lenders how reliably you repay your debts.
• Correcting errors on your credit report, making on-time payments, and reducing your balances all help increase your credit score.
• Be cautious with a credit repair service that charges up-front fees. You can repair your credit on your own at no expense and avoid engaging with questionable services.

What is a credit score?

A credit score is a three-digit number ranging from 300 – 850 that indicates to lenders how responsible you are when borrowing money.

A high credit score shows lenders that you pay your bills on time and don't borrow more than you can repay.

A low credit score may indicate you are a credit risk. Lenders see that you may miss payments or overextend your line of credit regularly, your account is very young, or your spending habits are unpredictable.

Learn more about what credit score you need to buy a house.

Equifax^®, Experian^®, and TransUnion^® are the three major credit-reporting bureaus that gather data on your spending habits and calculate your credit score. Mortgage lenders often order a tri-merge credit report, combining reports from the three bureaus into a single report.

How can you learn more about your credit score?

There are several ways to see your credit score. You may buy a copy of your credit report, including your credit score, from each credit bureau.

There also is a good chance that your credit card company or bank offers free access to your credit scores, either on your statements or upon request.

Under the Fair Credit Reporting Act, you’re entitled to access your credit report from each of the three major credit reporting bureaus once a week for free. You can view your free credit report by visiting AnnualCreditReport.com. This will not include your credit score.

How is your credit score determined?

Equifax^®, Experian^®, and TransUnion^® may report slightly different credit scores based on the information they receive from lenders, collection agencies, and public records. However, your scores should be similar.

The FICO^® Score is the most widely used credit scoring model, but it's no longer the only score mortgage lenders may consider. Mortgage lenders also may use VantageScore^® 4.0, a popular alternative credit-scoring model, when evaluating a borrower's creditworthiness.

The following is a rough breakdown of how FICO^® credit scores are calculated.

• Payment history (35%): Your payment history includes how often you miss payments, how many days on average your late payments are overdue, and how quickly you make an overdue payment. Each time you miss a payment, you hurt your credit score.
• Current loan and credit card debt (30%): Your current debt comprises factors like how much you owe, how many and the types of cards you have, and how much credit you have available. Maxed-out credit cards and high loan balances hurt your score, while low balances raise your score – especially if you pay them off.
• Length of your credit history (15%): The longer your credit history, the higher the probability that you’ll follow the same credit patterns. A long history of on-time payments improves your score, so it can sometimes be beneficial to leave accounts open if you’ve paid them off.
• Account diversification (10%): Creditors prefer lending to borrowers with a mix of account types, including home loans, credit cards, and installment loans.
• Recent credit activity (10%): When you open several credit cards or request a sudden increase in credit, it suggests to creditors that you’re in financial trouble. Don’t apply for multiple accounts at once, or your credit may take a hit.

How to fix credit to buy a home in 6 steps

If you're wondering how to repair credit problems before applying for a mortgage and buying a home, here are six strategies that can help.

1. Correct any errors on your credit report

Errors on credit reports are more common than many people realize, and they can negatively affect your credit score. Common errors include:

• Accounts that don't belong to you
• Closed accounts or paid-off loans reported as open
• Incorrect, late, or missed payments
• Outdated credit-utilization information

Before starting a credit repair plan, review all three of your credit reports carefully. If you find information you believe is incorrect, you have the right to file a dispute with the credit bureau reporting the error.

Each credit report includes instructions for disputing inaccurate information. The credit bureau must investigate the dispute and notify you of the results.

The company that supplied the information – such as a bank, credit card issuer, or landlord – generally must investigate and respond within 30 days. If you provide additional information during the investigation, that period may be extended to 45 days.

If the investigation determines the information is inaccurate or cannot be verified, it must be corrected or removed. If the information is verified as accurate, you can ask the credit bureau to add a statement explaining your side of the dispute.

2. Make small, regular payments

Your payment history is the biggest single factor affecting your credit score, accounting for about 35% of a FICO^® Score. That means one way to improve your credit is to make at least the minimum payment on all your accounts every month.

Ideally, you should pay off each of your outstanding credit card balances before they’re due. This reduces your revolving utilization and helps you save on interest in the long term.

Most credit card companies allow you to set email or text alerts when a minimum payment is due, and you can schedule automatic payments with most credit cards.

If you have credit cards you don’t use, resist the temptation to close them. Closing credit lines lowers your available credit and increases your revolving utilization percentage. Instead, charge a small item – like a cup of coffee or dinner – once a month and pay the bill in full immediately.

3. Reduce your high-balance accounts

You’ll see your credit score increase if you reduce the amount you owe on your credit cards. Your revolving utilization makes up 30% of your credit score, so it’s worth it to put any extra money in your budget toward debt reduction.

You can help reduce high balances via the following strategies:

• The snowball method. Start with your smallest debt and pay it off, then roll that payment amount into your next-smallest debt, and so on.
• The debt avalanche method. Alternatively, give priority to repaying the debt with the highest interest rate first. After that debt is repaid, roll over your extra dollars toward your next highest-interest debt, and so on.
• Keep your credit-utilization ratio below 30%, ideally 10%. If your credit utilization ratio is high, focus on bringing down the amount you owe. Alternatively, you can increase your credit limit by applying for new credit or asking for a higher limit. Just be careful not to use that new credit.
• Repay accounts that are close to maxed out. These accounts weigh more in how your credit score gets calculated, so bringing down those balances will help.

4. Consider a debt consolidation loan

A debt consolidation loan allows you to pay off your outstanding debts and leaves you with a single monthly payment to make. This can improve your credit utilization rates and help you avoid missed payments. Consolidating debt can be a great option for you if you have multiple lines of credit that you struggle to keep up with.

A hard inquiry appears on your credit report when you apply for a debt consolidation loan, which causes your credit score to drop by a few points immediately after your inquiry. Focus on making on-time payments above the minimum required amount after you get your debt consolidation loan to make up for this effect.

5. Work with a credit counseling agency

Credit counseling agencies can help you analyze your finances and find realistic solutions for your debt and credit issues. Be picky if you decide to work with these types of companies. Ask about fees, specific pricing, services, and products, and avoid companies that are reluctant to provide up-front information on pricing or their debt-reduction tactics. You can find affordable and reputable assistance from a nonprofit credit counselor through the National Foundation for Credit Counseling.

Be careful with credit 'repair' companies

Credit counselors are different from credit repair services. Counselors focus on debt management and reduction, while credit repair services focus mostly on credit scores.

Many unethical repair services promise to remove accurate information from your report or require payment up front before delivering results.

It's best to bypass credit repair companies and work with trusted credit counseling agencies instead, including nonprofits such as the National Foundation for Credit Counseling.

6. Build toward a target credit score

Once you know your score and the steps you need to take to improve it, you can create a plan to do so. While score ranges vary slightly between the FICO® Score and VantageScore^® 4.0 models, 850 is generally considered the highest possible credit score under both scoring systems.

Although there is no longer a hard minimum credit score requirement for conforming conventional loans, borrowers must still meet underwriting standards based on their overall credit profile and other risk factors. FHA loans may be available with credit scores as low as 500, though a score of 580 or higher may qualify borrowers for a lower down payment requirement.¹ USDA lenders often look for scores around 640, while VA loans do not have a government-mandated minimum credit score requirement.²

FAQ

Here are answers to some common questions about credit repair.

Is it worth paying someone to fix your credit?

Most people can fix their credit themselves without paying someone to help. There are credit repair services available, but experts caution against using them because they tend to charge too much, and some engage in unethical practices. Instead, use the tips in this article to repair your credit score, and enlist the assistance of a nonprofit credit counseling agency if necessary.

Is it true that your credit clears after 7 years?

In general, most negative information – such as late payments – will roll off your credit report after 7 years. But some types of debt, like a Chapter 7 bankruptcy, may remain for 10 years.

Is 650 a good credit score?

A 650 credit score is regarded as "fair." With this score, you might get approved for credit, but the terms and interest rate won’t be ideal. In general, a good credit score falls in the 670 – 780 range, which is considered ‘good’ to ‘very good.’

How long does it take to repair credit scores?

The experts say repairing your credit score could take anywhere from 3 – 6 months to a few years, depending on how severely your credit has been damaged. Credit scores are easy to damage but trickier to repair. Even when you repay your debts, it could take months for that information to be reported back to the credit bureaus. Missed payments can remain on your credit report for up to 7 years. If you are eager to buy a home, you should start working on credit score improvement well in advance.

The bottom line: How to repair your credit for a mortgage

Improving your credit score won't happen overnight, but consistent habits can make a meaningful difference over time and help even first-time home buyers repair their credit. By checking your credit reports for errors, making on-time payments, paying down high balances, and avoiding questionable credit repair services, you can strengthen your credit profile and improve your chances of mortgage approval. It's also important to remember that lenders consider more than just your credit score when evaluating many loan applications.

If you're ready to take the next step toward homeownership, you can start a mortgage application to explore your options and see what you qualify for.

¹ To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

² Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.