How to Repair Credit to Buy a House in 5 Steps

Written by Elizabeth BoydSeptember 26th, 20224 minute read

There are no tricks or quick fixes to a bad credit score. But you can take steps to prove to repair your credit over time:

  1. Dispute inaccurate credit information
  2. Offset negative credit history
  3. Improve your debt rating
  4. Pay off your balances early
  5. Consult a credit counselor

Your credit score is a pivotal factor when applying for a mortgage. It impacts whether you’re eligible for a home loan and what terms you’ll be offered if you qualify.

So if you're trying to buy a home with a poor credit history, it’s essential to boost your score as much as possible to demonstrate your creditworthiness.

If you’re serious about buying, connecting with a good local agent (or even a few) is a good first step. They can help you determine your budget and target neighborhoods, refer you to trusted local lenders so you can get pre-approved, and start setting up house showings.

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1. Dispute inaccurate information on your credit reports

Start by accessing your credit score from the three major credit bureaus (TransUnion, Equifax, Experian). Carefully review your credit reports to learn where you stand and what you need to correct and improve.

Review the following for errors:
  • Your name, former names or aliases
  • Current and previous addresses
  • Employment history
  • Date of birth
  • Social Security number
  • New credit applications
  • Reported accounts
  • Negative items

Check accounts, dates, balances, payment status, payment history, and account standing to ensure accuracy. Look out for accounts that don’t belong to you, erroneously reported missed payments, open accounts that should be closed, and information that should no longer be reported.

If you discover any significant discrepancies, file a dispute with the relevant credit agency.

Credit bureau contact information:

Equifax Information Services
Experian Disputes
TransUnion Consumer Solutions
P.O. Box 740256
Atlanta, GA 30374
P.O. Box 4500
Allen, TX 75013
P.O. Box 2000
Chester, PA 19016
(866) 349-5191
(888) 397-3742
(833) 395-6941

2. Establish good habits now to offset bad credit history

Set up autopay or alerts to ensure on-time payments. Missed payments and bad debt from your past will drag your score down. But as you build a reliable debt activity pattern, the impact of missed payments will fade over time.

Reduce an account's balance — but DON'T close it if it’s your only installment loan. Instead, make a substantial payment on the principal balance, then make small, manageable monthly payments.

For example, you may plan to pay off a personal loan with your bank to reduce debt. But eliminating that account could hurt your credit mix, which affects 10% of your score.

» LEARN: What Is Principal and Interest on a Mortgage Payment?

3. Improve your debt rating

Your existing debt impacts 30% of your FICO score. The fewer balances and the lower the debt, the significantly better impact it has on your score.

What is a revolving utilization ratio?

Your revolving utilization ratio represents how much you’re using of the available credit on your credit card accounts. Try to use less than 30% of the credit your issuer extends to you — the lower, the better for your score.

Some ways to lower your utilization ratio improve your score:

  • Pay down your existing debt. Try to pay extra on high-interest cards for the most impact.
  • Consider a debt consolidation loan if you’re struggling with multiple accounts and high rates.
  • If you're in good standing, ask your card issuer to raise your credit limit. That boosts your available credit, lowering your utilization ratio.

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4. Pay your credit card balances before the bill is due

Even if you pay off your credit card balance every month, your credit card company doesn’t automatically send that $0 balance to the credit bureau. So don’t assume you have a 0% utilization ratio.

Make the full payment the day your card issuer reports it to the bureau — often the day BEFORE the statement closing date. Then don't make any new purchases until that date. This will help reflect that $0 balance you’ve earned with the credit bureaus.

5. Consider a credit counseling agency

Maintaining good credit is challenging when you haven’t been taught how. According to the Milken Institute, 43% of U.S. adults are not financially literate.[1]

A reputable credit counseling agency can help you learn finance management skills, healthy financial habits for life, and ways to boost your credit score.

» MORE: Best Mortgages for People with Bad Credit

Credit repair FAQs

You can request a free copy of your credit report online from the three major agencies or by phone from Annual Credit Report.com or at (877) 322-8228. In addition, many companies let you check your Vantage and FICO scores online for free or through a paid membership.

File a dispute online, by mail, or by phone with the credit bureau where you obtained the report.

To calculate your utilization ratio, divide your total balances by total credit lines. So if you have three credit cards with a combined maximum credit line of $3,500, and your outstanding balances on those cards total $750, you have a 21.4% utilization ratio ($750 / $3,500 = 0.214).

ARTICLE SOURCES
[1]

Milken Institute. "Financial Literacy in the United States." Page(s) 11.