Thinking about buying a home? Your credit score plays a major role in the kind of mortgage options you might have access to. A higher score could open the door to better loan terms, lower interest rates and more flexibility—while a lower score might mean fewer choices and added costs over time.
The good news: improving your credit score is achievable. With a little patience and diligence, you can strengthen your credit score and improve your chances of qualifying for a mortgage that supports your homeownership goals.
Below, we’ll walk through some practical steps to help boost your credit score and get you closer to your new home.
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What Is a Credit Score and Why Does It Matter?
Your credit score is a three-digit number that tells lenders how reliable you are with repaying borrowed money based on your credit history and behavior.
Credit scores are generated by the three major credit reporting agencies: TransUnion®, Experian® and Equifax®. Though each of these agencies might give you a slightly different number, they’ll all range between 300 and 850, and they will likely be similar, since all of these agencies consider similar factors in calculating your score.
The higher the number, the more reliable you seem to lenders. If your number is low, lenders will likely see you as a risk and be less inclined to loan you money. Generally speaking, a score above 670 is considered favorable by lenders.1 If your credit score falls below this threshold, your loan options could be limited.
What is a Good Credit Score?2
|
Poor |
300-579 |
|
Fair |
580-669 |
|
Good |
670-739 |
|
Very Good |
740-799 |
|
Exceptional |
800-850 |
What Determines My Credit Score?
A credit score is determined by these factors:
- Payment History: This is the biggest factor that determines your score—whether or not you’ve paid back borrowed money on time.
- Debt-to-Credit Ratio: This refers to the amount of money you owe compared with your credit limit. For instance, perhaps you owe $1,000 on a credit card, but your credit limit for that card is $20,000.
- Length of Credit History: It’s generally preferable to lenders that you have a longer credit history.
- Recent Credit Activity: If you create new credit by opening a new account, this could impact your score. Closing an account may also impact your credit score.
- Credit Mix: Greater diversity across your credit accounts is generally considered favorable. For instance, you might hold credit cards, a car loan and a student loan.
How Can I Improve My Credit to Get a Mortgage?
There are many ways you might improve your credit score, but the main thing is: Pay your bills on time. Let’s get into the details:
- Check for Errors: You can receive one free credit report per year from each of the three major credit agencies through annualcreditreport.com. Go over your report and make sure there aren’t errors such as inaccurately listed late payments or accounts you don’t hold. If there are, you can dispute them with the agency.
- Make Regular Payments: You don’t need to immediately pay off all of your debt. But it will probably help your credit score if you make small, consistent payments on all of your lines of credit. Try to make payments on your credit cards before you incur interest on them (many credit cards carry a grace period of 21 days before your charges incur interest).3
- Pay Down High Balances: Try to delegate any extra cash in your budget to pay down debts. Remember, if you can reduce the amount of debt you have as compared to your credit limit, this should help improve your score. So it may make sense to focus on paying down accounts where you’re closest to your credit limit. Ideally, you’ll use less than 30% of your limit on any card, or even less than that.4
- Increase Your Credit Line: If you have cards you’ve been diligent about paying off on time, call and ask about a credit increase—which could have a favorable impact on your debt-to-credit ratio, and thus your overall score. If a credit increase is granted, do not start spending more on that card.
- Diversify Your Credit Mix: Opening up another line of credit, whether that’s a secured credit card or a personal loan, could help you improve your score—so long as you make regular payments on it. Make sure the new line reports to all three major credit agencies. One option is a credit-builder loan, which require fixed monthly payments until you’re given a lump sum at the end of the loan’s term.5 Note that this strategy works best if you are a long ways from applying for a mortgage, since it may bring down your credit in the short term.
How Long Does It Take to Improve a Credit Score?
That will depend on what your credit score is now, and whether you’ve suffered any significant credit events. If you start with a “good” credit score but you’re late on a mortgage payment, for instance, it may take about nine months to get your score back into “good” territory.5 However, if you’ve suffered a bankruptcy, these events can remain on your credit history for 7 to 10 years and may impact your credit score up to 200 points.6 (These timelines are not guaranteed and can depend on multiple factors.) That’s why rebuilding a credit score takes patience and diligence—you’ll want to make it a regular habit to make timely payments and monitor your credit usage until your score reenters a favorable range.
Looking to buy, refinance† or access equity? Apply today.
What Are My Mortgage Options If My Score Is Low?
If your credit score falls below 670, there are still loans available to you. Below are a few common options:
- FHA Loans: Loans backed by the Federal Housing Administration allow lenders to carry more flexible qualification requirements. Newrez carries FHA loans, and you may be able to qualify with a credit score as low as 580, so long as you meet other qualifying criteria. Learn more about FHA loans.
- Conventional Loans: You may be able to qualify for a conventional loan with a credit score as low as 580. However, getting a loan with a lower score may result in higher interest rates or having to put more money down, so it’s still to your benefit to boost your score before attempting to qualify.
- VA Loans: If you’re a Veteran, Active-Duty Military or a surviving spouse, you may qualify for a VA loan with a credit score as low as 580. Learn more about VA loans.
- Newrez SmartEdge: This non-qualified mortgage (non-QM) loan is designed for borrowers seeking a Jumbo loan who may have undergone a derogatory credit event in the past, such as a foreclosure. You may qualify with a credit score as low as 640. Learn more about SmartEdge.
If you want to find out more about your loan options, you can always have a quick, obligation-free chat with a Newrez Loan expert.
Homeownership Is Within Reach
If you’re struggling to qualify for a home loan because of a damaged credit score, there are steps you can take to get back to a qualifying score. Making regular on-time payments is part of improving your overall financial health—and could bring you closer to your homeownership goals.
Want to know more about mortgages that may be available to you? Talk with a Newrez loan expert today.
TransUnion® is a registered trademark of Trans Union LLC. Experian® is a registered trademark of Experian Technology Limited. Equifax® is a registered trademark of Equifax Inc.
References:
2 What Is a Good Credit Score?
3 How Credit Card Grace Periods Work - NerdWallet
4 9 Real Ways to Improve Your Credit Fast - NerdWallet
5 How Long Does It Take to Improve a Credit Score?
6 Take These 11 Steps to Rebuild Your Credit After Bankruptcy
Improving Your Credit: Frequently Asked Questions
- Can I improve my credit by closing accounts?
Closing lines of credit may actually damage your credit, since you’ll be reducing the amount of credit you have access to.
- Should I pay a credit counselor or credit repair service?
If you want to talk with an expert about improving your credit, be careful about who you go to. Some credit repair services are scams that will pressure you to pay fees or make false promises about fixing your credit.7 Check companies with your State Attorney General’s office and local consumer protection agency.
- How do I improve my credit score fast?
There isn’t quite a “quick fix” for damaged credit, but depending on your current score, you may see noticeable improvement in a number of months if you diligently make payments and take other measures as detailed above.
- What if I don’t have credit?
You can build credit in several ways, including opening a secured credit card, getting a credit-builder loan, becoming an authorized user on someone’s existing credit card or making sure your rent payments are reported to credit agencies.