A good credit record is your most important asset when buying a house. Here's how to clear your credit score and ensure you get the thumbs-up from your bank.
Article summary
- Make sure you maintain a good credit record. A good credit record goes a long way to getting bank approval for a bond.
- Maintain a good credit record by clearing outstanding debts, and paying your bills on time
- Check your credit record for errors, and lodge disputes with the credit bureau if you find any.
- It usually takes about three months for improvements to your credit record to register.
A good credit record is your most important asset when applying for a home loan. It’s the first thing banks look at when considering your application.
So ensure your credit record is clean, and here’s how you can do that.
What is a good credit score?
610 is the minimum you need for your application to be accepted.
Anything lower than that makes getting a home loan extremely difficult.
Here’s a more detailed rundown:
- 781 to 850. Excellent.
- 661 to 780. Good.
- 610 to 660. Fair.
- 500 to 610. Poor.
- 300 to 499. Very poor.
Find out your credit score
You can find out your credit score by getting prequalified with ooba Home Loans, or using our free, online tool; the Bond Indicator.
Clearing your credit score
If your credit score is low, it’s not the end of the world. There are measures you can take to improve it.
- Pay off your accounts.
- Pay bills on time.
- Check for court orders.
- Check for errors.
- Don’t apply for more than one loan at a time.
- Avoid spending up to your credit limit.
1. Pay off your accounts
Store credit, cell phone accounts, and bank loans – especially for other assets, such as a car – are a good place to begin.
A credit card also has a strong influence on your credit score, so try to include at least one of these in the mix. Paying back your credit card balance has a significant impact on your score.
2. Pay your bills on time
Doing so at the correct monthly installment, or even a little more, will help build a good credit score.
3. Check for court orders
..and any other such black marks there might be on your credit record.
Resolve the issue by paying the outstanding amount. The court order will be removed once the credit bureau receives proof of payment.
4. Check for errors
You can check your credit report for information that doesn’t seem correct, such as late payments that were actually paid on time.
You can lodge these disputes with the credit bureau, though you’ll need to provide evidence in the form of supporting documentation.
It usually takes 20 days for the credit bureau to investigate such disputes and correct the record.
5. Don’t apply for more than one loan at a time
Doing so will signal to lenders that your financial situation is deteriorating.
6. Avoid spending up to your credit limit
Generally, you’ll want to keep your spending below a third of your credit limit.
How long will it take for improvements to show?
According to businesstech.co.za, improvements usually start showing up on the credit record after around three months, but it’s recommended to wait about six months before reapplying.
Apply to multiple banks
You can improve your chances of getting a home loan, even with a lower credit score, by applying to multiple banks. Some might be more lenient than others.
ooba Home Loans can assist in this. We submit your home loan application to multiple banks, allowing you to compare deals and pick the best one.
In addition, we offer a range of tools that can make the homebuying process easier. Start with our Bond Calculator, then use our Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.
FAQs
After three months, you'll notice your credit score improving. After six months, your score can recover almost in full. If you must prioritize, pay your minimum credit card payments, auto loans, and student loans first. Then, pay your entire credit card balance and other bills.
How to increase credit score quickly to buy a house? ›
How to improve your credit scores before buying a home
- Check your credit reports and scores. ...
- Select your target credit scores. ...
- Pay your bills on time. ...
- Raise your credit limits and reduce your debt balance. ...
- Avoid applying for new credit accounts. ...
- Consider credit counseling to get a handle on significant debt.
Follow these six steps to get your credit ready for a mortgage:
- Check your credit reports and scores.
- Focus on paying every bill on time.
- Stop applying for credit.
- Limit big purchases.
- Reduce your debt.
- Save up for a 20% down payment.
After three months, you'll notice your credit score improving. After six months, your score can recover almost in full. If you must prioritize, pay your minimum credit card payments, auto loans, and student loans first. Then, pay your entire credit card balance and other bills.
How to wipe your credit history clean? ›
It's not possible to wipe your credit history clean. Negative items like late payments, collections and bankruptcies typically remain on your credit report for several years. However, you can rebuild your credit with on-time payments, debt reduction and responsible credit account management.
What is the minimum credit score to buy a house? ›
For a conventional mortgage in California, you typically need a minimum score of at least 600. If you qualify for certain government-backed loans, however, you may be able to buy a home with a score as low as 500.
How to raise your credit score 200 points in 30 days? ›
How to Raise your Credit Score by 200 Points in 30 Days?
- Be a Responsible Payer. ...
- Limit your Loan and Credit Card Applications. ...
- Lower your Credit Utilisation Rate. ...
- Raise Dispute for Inaccuracies in your Credit Report. ...
- Do not Close Old Accounts.
It is possible for consumers tofix their credit score in as little as three to six months. How quickly you can repair credit to buy a house will depend on your current credit score, how quickly you can pay off total debt, and whether you can become an authorized user.
How can I raise my credit score 100 points overnight? ›
10 Ways to Boost Your Credit Score
- Review Your Credit Report. ...
- Pay Your Bills on Time. ...
- Ask for Late Payment Forgiveness. ...
- Keep Credit Card Balances Low. ...
- Keep Old Credit Cards Active. ...
- Become an Authorized User. ...
- Consider a Credit Builder Loan. ...
- Take Out a Secured Credit Card.
The credit score used in mortgage applications
While the FICO® 8 model is the most widely used scoring model for general lending decisions, banks use the following FICO scores when you apply for a mortgage: FICO® Score 2 (Experian) FICO® Score 5 (Equifax) FICO® Score 4 (TransUnion)
What credit score is needed to buy a $300K house? The required credit score to buy a $300K house typically ranges from 580 to 720 or higher, depending on the type of loan. For an FHA loan, the minimum credit score is usually around 580.
Which lenders ignore 6 month rule? ›
Thankfully, not all lenders observe this 6-month rule. Virgin Money, Mortgage Trust, Paragon and a number of other specialist lenders will allow day one remortgages, but with one important caveat: they only allow the remortgage value to be the price paid for the property within the first 6 months.
Can I pay someone to fix my credit? ›
You can always try to repair your credit yourself; however, depending on your financial situation, working with a reputable credit repair service may save you time and provide a better outcome in the long run.
What is a goodwill deletion? ›
What is a goodwill letter or late payment removal letter? In a goodwill letter, sometimes called a late payment removal letter, you ask the creditor that reported your late payments to remove the derogatory mark from your credit reports.
Can you legally erase bad credit? ›
Correct information cannot be removed and stays on file for at least seven years. So, if your score is low due to accurate negative information, you'll need to repair your credit over time by making payments on time and decreasing your overall amount of debt.
How long until my credit score is wiped clean? ›
Most negative items should automatically fall off your credit reports seven years from the date of your first missed payment, at which point your credit score may start rising. But if you are otherwise using credit responsibly, your score may rebound to its starting point within three months to six years.
How quickly can you build credit to buy a house? ›
They also look for any negative items in your credit history that could automatically disqualify you from getting a mortgage loan. If you are building your credit from scratch, then two years of the right credit behaviors and credit history should be enough to help you qualify for a home loan.
How do I raise my credit score immediately? ›
15 steps to improve your credit scores
- Dispute items on your credit report. ...
- Make all payments on time. ...
- Avoid unnecessary credit inquiries. ...
- Apply for a new credit card. ...
- Increase your credit card limit. ...
- Pay down your credit card balances. ...
- Consolidate credit card debt with a term loan. ...
- Become an authorized user.
You'll typically need a credit score of 620 to finance a home purchase. However, some lenders may offer mortgage loans to borrowers with scores as low as 500. Whether you qualify for a specific loan type also depends on personal factors like your debt-to-income ratio (DTI), loan-to-value ratio (LTV) and income.
How long does it take to rebuild credit from 500? ›
Average Recovery Time
For instance, going from a poor credit score of around 500 to a fair credit score (in the 580-669 range) takes around 12 to 18 months of responsible credit use. Once you've made it to the good credit zone (670-739), don't expect your credit to continue rising as steadily.
