How to repair your credit score

How to repair your credit score
By
Reel Unlimited

Updated today —

5 min read
How to repair your credit score

Homeownership is a huge deal. There's this sense of security when you know you have a roof over your head and a house you can call your own. But, if you've become notorious for poor credit, how will you repair credit score when applying for a home loan? Here's a brief guide on the credit repair process:

What Is a good credit score?

Two main factors define credit score analysis:

1. The credit-scoring model that is used (FICO versus VantageScore).

2. The three credit bureaus that pull the score are ExperianEquifax, and TransUnion.

When Experian estimates are used, a good FICO Score is between 670 and 739, while a good VantageScore is between 661 and 780.

Top factors that affect your credit score

Although each scoring model varies in analyzing the quality of your credit score, the top factors that affect your credit score don't differ much between FICO and VantageScore. As listed in an article by Experian, here are the factors that make up your FICO Score.

Payment history

The most crucial topic when talking about credit scores. Paying off previous credit regularly is important to major credit bureaus. 90% of top lenders use FICO Score, and payment history makes up 35%.

Amounts owed

How much of your available credit are you utilizing? Amounts you owe give credit lenders information on your reliance on non-cash funds. Using more than 30% of your available credit will put you on the dark side of this topic. 30% of your FICO Score is based on your credit utilization ratio.

Credit history length

Contrary to popular belief, the time you've held your credit accounts will work on your behalf when calculating your credit score. Those with a longer credit history will have higher credit scores, making up 15% of your FICO Score.

Credit mix

As the credit mix accounts for 10% of your FICO Score, having various credit accounts, including mortgage, personal loan, car loan, student loan, credit card, or other credit products, will benefit you if you've managed your payments well.

New credit

If you have just opened new credit accounts before applying for another one, the number of accounts you opened will make up 10% of your FICO Score. Too many accounts will be considered risky, affecting your credit score.

How long does it take to repair your credit score?

According to American Express, one of the leading credit card companies, a good credit score takes around 6 months. And if you take a hit while trying to build up a good credit score, how long it will take you to raise your score depends on your situation.

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What Is a credit report, and why is it important when buying a home?

Credit reports document your accountability to potential lenders and landlords when loaning money or property. Credit reports will list past and present payment records, which may include a credit score calculation. This helps creditors know how much of a risk you pose upon settlement. One would always like to know whether they're throwing good money after bad. Consequently, a good credit score means you will have access to credit, larger loan amounts, and potentially better interest rates.

Top 10 tips to increase your credit score fast when buying a house

Although it can take time to achieve a solid credit score when you've mismanaged your payments, as listed by The Mortgage Reports, here are 10 tips to rebuild credit fast.

  1. Get your free credit score.
  2. Dispute any errors.
  3. Make on-time payments.
  4. Pay down debt.
  5. Become an authorized user.
  6. Consider a rapid rescore.
  7. Never carry a credit card balance.
  8. Improve your debt-to-income ratio.
  9. Avoid closing open bank and credit accounts.
  10. Don't open new credit cards or loans.

What happens if my credit score drops before closing?

It's important to know that your credit score is checked twice when you apply for credit to buy a house. Mortgage lenders check your credit during the screening process—and again just before closing—before giving you the final thumbs up. You might lose the loan if your credit score drops between the two reports. In the best-case scenario, your lender may send your application back through underwriting for a second review.

Work with the best credit repair companies

A responsible credit user maintains a long credit history vs. a limited credit history with minimal credit issues. Most credit repair services and credit repair organizations/credit repair companies work with you for a monthly fee to aid in a credit repair plan and debt management plans. Consider the following for credit monitoring:

  • Free credit score consultation.
  • Free credit reports.
  • Credit counselor.
  • Credit reporting agency.
  • Credit counseling agency.
  • Financial counseling association.
  • Personal finance tools such as the credit pros mobile app.

To avoid bad credit, check your credit report information and score regularly, maintain your credit limit, settle your monthly payments and credit card debt on time, and work with the right credit repair company to avoid falling victim to any credit repair scams.

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