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I've been working in mortgage lending since I was 18 years old, and if there's one thing I've learned in my years at AmeriSave, it's this: your credit score isn't just a number. It's the difference between getting the loan you need to buy your dream home or watching someone else move into it.
Maria, a borrower in the Dallas-Fort Worth area, wanted a house but only had a 605 credit score. She was angry and really wanted to give up. But here's something that most people don't know: credit repair isn't magic, and it's not a secret process that only "experts" can figure out. Once you know how the system works, it's not that hard.
So I told Maria what I'm going to tell you now. What happened six months later? She bought that house with a credit score of 672 and saved almost $200 a month on her mortgage payment compared to what she would have paid at 605. That's $2,400 a year. We're talking about saving more than $70,000 over the life of a 30-year mortgage. All of this happened because she took credit repair seriously.
I won't lie: fixing your credit takes time and effort. Even though credit repair companies say in their ads that they can fix your credit right away, there is no quick fix. You can definitely raise your credit score-sometimes by a lot-in just a few months to a year if you're willing to put in the work.
What does a credit score really mean?
Before we talk about how to fix your credit, let's make sure we all know what a credit score means. Your credit score is like a report card for lenders that shows how well you've handled borrowed money. This three-digit number, which can be anywhere from 300 to 850, tells you how likely you are to pay back what you borrow.
The Fair Isaac Corporation made the FICO® Score, which is the credit score that people use the most, according to the Consumer Financial Protection Bureau. Most mortgage lenders, including AmeriSave, use this to look at loan applications. Some lenders use the VantageScore model, but for mortgages, FICO® is the standard.
A lot of people get this wrong: a credit score doesn't tell you how healthy your finances are overall. If you haven't used credit responsibly, you could have a lot of savings and investments but still have a low credit score. On the other hand, you could be living from paycheck to paycheck and still have a great credit score if you manage your credit well. Chris Fohlin, the founder of Fohlin Financial Coaching, says this about his work with clients: "A credit score shows how well you handle borrowing and paying back money." When you need to borrow money soon or get into a long-term financial relationship, like renting an apartment, your credit score is very important.
The Three Big Credit Bureaus
Three companies-Equifax®, Experian™, and TransUnion®-keep track of how you use credit and give you a score. Not all creditors report to all three bureaus, so each bureau may show a score that is a little bit different. When you apply for a mortgage, lenders usually get a "tri-merge" credit report. This report combines information from all three credit bureaus into one complete picture.
I always tell people to check all three reports because mistakes on just one can still affect whether or not you get your mortgage. And yes, mistakes happen more often than you might think. The Federal Trade Commission's 2012 study found that about one in five people had a mistake on at least one of their three credit reports.
This is where things start to get interesting. Not all of the things that affect your credit score are equally important. Knowing how the breakdown works helps you decide where to put your energy.
Your payment history is the most important thing that goes into your credit score. It makes up 35% of your FICO® Score. This includes whether you pay your bills on time, how often you miss payments, how late your payments are when you do miss them, and how long it's been since you last missed a payment.
Research from the finance department at Middle Tennessee State University says that "Even one late payment that's more than 30 days late can have a significant negative effect on your credit score.” That's why the first rule of fixing your credit is to always, always, always pay at least your minimum payments on time. If you need to, set up automatic payments. Set reminders on your calendar. Anything that needs to be done.
Here's something most people don't know: a payment that is 30 days late is not the same as one that is 60 or 90 days late. I learned this the hard way when I first started working in the business. The longer you don't pay, the worse your score gets. And what about collections? Those hurt even more.
Your credit score is made up of 30% of how much you owe compared to how much credit you have. People make mistakes all the time when it comes to this, which is called the credit utilization ratio.
Let's say you have three credit cards with a total credit limit of $10,000 and a balance of $7,000. That's a 70% usage rate, which is way too high. Lenders see this and say to themselves, "This person is at their limit." They are using a lot of credit. Your score will still be affected if your statement closes with high balances, even if you pay off your balances in full every month.
The secret number? Don't use more than 30% of your cards at any one time. But if you really want to get the best score, try to get less than 10%. David Kindness, a CPA and personal finance expert from San Diego, tells his clients to "focus on paying off accounts that are close to maxed out." "These accounts have a bigger effect on how your credit score is calculated."
15% of your score is based on how long you've had credit accounts. This includes the age of your oldest account, the age of your newest account, and the average age of all your accounts.
This is why getting rid of old credit cards can be bad for you. If you paid off a credit card you've had for 10 years, great job! But if you close that account, you lose ten years of good credit history. You could keep it open and charge something small, like your Netflix subscription, to it once a month. You could also set up autopay so you never miss a payment.
Having a variety of credit types, like credit cards, auto loans, student loans, and mortgages, shows lenders that you can handle different kinds of credit responsibly. This is 10% of your score.
Professor Sean Salter says, "If you show that you can use different types of credit responsibly and successfully, like installment loans and revolving accounts, you are much more likely to have a high credit score.”
That being said, don't open new accounts just to mix things up if you don't really need them. The short-term damage from a hard inquiry and the fact that your average account age will go down probably isn't worth it.
Lenders are worried when you open a lot of new credit accounts in a short amount of time because it makes you look financially desperate. This is why getting five new credit cards in one month hurts your score. Each application causes a "hard inquiry," which can lower your score by a few points. But if you have a lot of hard inquiries in a short amount of time, it means you're at risk.
The only time this doesn't apply is when you're looking for a mortgage or car loan. Credit scoring models know that people need to look for the best rates, so if you apply for more than one mortgage or auto loan within 14 to 45 days (depending on the model), they usually only count as one inquiry.
The Fair Credit Reporting Act says that you can get one free credit report from each of the three major bureaus every week through AnnualCreditReport.com. That's the official free site that the government requires. You don't need a credit card, a trial subscription, or any of that other nonsense.
These free reports don't show your actual credit score; they only show the information that goes into figuring it out. But for fixing your credit, the detailed information is more useful because that's where you'll find mistakes that you can argue against.
A lot of banks and credit card companies now let their customers see their credit scores for free. You may already have free access to at least one of your scores without even knowing it. Check your credit card statements or online banking portal.
Sean Salter has a good idea: "Spread out your requests for credit reports from the three bureaus so that you get one updated credit report from one of the three bureaus every four months or so.” You can keep an eye on things all year long without having to pay for anything.
Alright, let's get into the actual strategies that work. I'm giving you nine because the competitor's articles I've seen only list six, and honestly, they're leaving out some important stuff.
This is step one for a reason. Before you do anything else, pull all three of your credit reports and go through them line by line. I mean, really scrutinize them.
According to the CFPB's dispute resolution procedures, credit bureaus must investigate any dispute you file and respond within 30 days. If they can't verify the information, they're required to remove it from your report. If you provide additional documentation during the investigation, they get an additional 15 days, bringing the maximum to 45 days.
Here's how the dispute process actually works: you file a dispute directly with the credit bureau (you can usually do this online). They contact the furnisher-that's the company that reported the information, like your credit card company or landlord. The furnisher must investigate and report back. If they can't verify the information or find it's inaccurate, the bureau removes or corrects it.
If the bureau decides the information is accurate and you disagree, you have the right to add a 100-word statement to your credit report explaining your side. While this statement won't change your score, future lenders will see it.
Not gonna lie, the dispute process can be frustrating. I've seen it take the full 45 days when documentation is involved. But it's worth it. One of my borrowers found three accounts on her report that weren't hers-turned out to be her ex-husband's accounts that got mixed up when they had a shared address. Once those were removed, her score jumped 47 points in a single month.
I cannot stress this enough. Payment history is 35% of your score, and it's the one factor you have the most control over moving forward. You can't change past late payments, but you can prevent future ones.
Here's what I tell every borrower I work with: if you can only afford minimum payments, make the minimum payments. Paying the minimum on time is infinitely better than paying more but paying late. Your credit score doesn't care how much you pay-it only cares that you pay something by the due date.
Set up automatic payments for at least the minimum on every account. Most credit card companies and lenders offer this, and it's free. If you're worried about overdrafts, time the automatic payments to occur right after your paycheck hits your account.
For accounts you don't use regularly, charge one small recurring bill to them-like a streaming subscription-and set up autopay for the full balance. This keeps the account active and demonstrates consistent on-time payments without you having to think about it.
Research on mortgage payment impact shows that even a single late payment can significantly affect credit scores and mortgage rates. According to Milliman's analysis of loan-level performance data, borrowers who miss one mortgage payment see an average credit score reduction of approximately 50 points, which can translate to higher interest rates. On a $300,000 mortgage, that's $40-$80 per month or $14,400-$28,800 over 30 years. One late payment can literally cost you tens of thousands of dollars.
Reducing your credit card balances has a double benefit: it lowers your utilization ratio and reduces the interest you're paying, freeing up more money to put toward debt. But there are two different philosophies on how to approach this, and they work for different people.
The Debt Snowball Method: Start with your smallest balance and pay it off completely, regardless of interest rate. Once that's paid off, take the payment you were making on it and add it to the payment for your next-smallest balance. The psychological wins of completely eliminating debts can be incredibly motivating.
Andrew Lokenauth, a Tampa-based personal finance expert, says he's "watched people's scores climb 100-plus points in six months using the snowball method.” That momentum is real, and for people who need that emotional boost to stay motivated, snowball is usually the right choice.
The Debt Avalanche Method: This is the mathematically optimal approach. List your debts by interest rate, highest to lowest. Make minimum payments on everything, but throw any extra money at the highest-interest debt. Once that's paid off, move to the next highest rate.
Professor Salter recommends the avalanche method because, "you'll pay less interest overall, which means you'll have more money available to put toward other debts.” This saves you the most money in the long run.
Between you and me? I'm a snowball person myself. I like seeing accounts disappear. But avalanche makes more financial sense if you can stick with it. Pick whichever method you'll actually follow through on-the best debt payoff strategy is the one you'll complete.
The 30% Rule: Regardless of which payoff method you choose, prioritize getting all your credit card balances below 30% of their limits. If you have a card with a $5,000 limit, get the balance under $1,500. That's when you start seeing significant score improvements. Under 10% utilization is even better if you can manage it. Lokenauth notes that "one of my clients paid down their credit cards from 90% credit utilization and saw a 70-point credit score increase.”
Here's a strategy most people don't think about: if you can't pay down your balances quickly, you can improve your utilization ratio by increasing your available credit instead. If you have a $5,000 limit with a $2,500 balance, that's 50% utilization. But if you get that limit increased to $10,000 while keeping your balance at $2,500, suddenly you're at 25% utilization.
Call your credit card companies and ask for a credit limit increase. Many will grant increases automatically if you've been paying on time for 6-12 months. Some companies let you request increases online without even talking to anyone.
The caveat: this usually triggers a hard inquiry on your credit report, which temporarily dings your score a few points. But if the increase is substantial enough to significantly lower your utilization ratio, the long-term benefits usually outweigh the short-term cost. The hard inquiry drops off after two years and stops affecting your score after one year.
And obviously-and I shouldn't have to say this, but I will-don't use that additional credit. The entire point is to lower your utilization ratio, not to accumulate more debt.
I see this mistake all the time, and it drives me crazy. Someone pays off a credit card they've had for years and immediately closes it, thinking they're done with debt. Then their credit score drops 20-30 points and they can't figure out why.
Closing old accounts hurts you in two ways: it reduces your total available credit (raising your utilization ratio), and it can shorten your average account age. Both factors negatively impact your score.
If you're worried about being tempted to use old cards, here's what you do: charge one small recurring expense to each card-something like a $10/month subscription-and set up autopay for the full balance. Put the physical card somewhere you won't reach for it casually. The account stays active, you maintain that credit history, and you're demonstrating consistent on-time payments.
The only time you should consider closing an account is if it has an annual fee you can't justify or if keeping it open genuinely puts you at risk of overspending. But even then, call the credit card company first and ask if they'll convert it to a no-fee version of the same card. That way you keep the account history without the fee.
If you're juggling multiple credit cards and struggling to keep track of payment due dates, a debt consolidation loan might make sense. This is where you take out one new loan to pay off multiple debts, leaving you with a single monthly payment.
According to Professor Salter, "Consolidating debt via a loan can help improve your credit scores in two major ways. First, consolidation can help with debt management by, instead of making multiple payments to multiple creditors, combining your debt into one payment made to one creditor. This simplification makes it easier to make your payments on time. A second way it helps is if you can consolidate at a lower interest rate than is currently being paid on the multiple individual credit accounts that can be consolidated.”
The trade-off: applying for a consolidation loan triggers a hard inquiry, which drops your score a few points immediately. But if it helps you make on-time payments and pay down debt faster due to a lower interest rate, the long-term benefit usually outweighs that initial dip.
Personal loans, home equity loans, and balance transfer credit cards are common consolidation tools. Balance transfer cards often offer 0% APR for 12-18 months, which can be a huge help if you can pay off the balance during that promotional period. Just watch out for balance transfer fees (usually 3-5% of the transferred amount) and make absolutely sure you can pay it off before the promotional rate expires-otherwise you're right back where you started, often at an even higher rate.
This strategy isn't talked about enough, but it can be incredibly effective, especially for people with very limited credit history. If someone with good credit-a parent, spouse, or close friend-adds you as an authorized user on their credit card, that account's entire payment history typically appears on your credit report.
Here's how it works: let's say your mom has a credit card she's had for 15 years with a perfect payment history and low utilization. She adds you as an authorized user. Now your credit report shows a 15-year-old account with perfect payments, which helps both your length of credit history and your payment history factors.
You don't even need to have access to the physical card or account. Being listed as an authorized user is enough. The primary account holder can simply add you and not give you the card.
The risk is on both sides: if the primary cardholder stops making on-time payments or maxes out the card, that negative information appears on your report too. And the primary cardholder needs to trust that you won't misuse the account if they do give you access to it. This strategy works best with close family members where there's already significant trust.
Not all credit card companies report authorized users to all credit bureaus, so check first. You want to make sure the account will actually appear on your credit reports before going through the hassle.
Look, I've got to be straight with you about this because I've seen too many people get taken advantage of. There's a whole industry of credit repair companies that promise to "fix" your credit for a fee, and most of them are, at best, doing things you could do yourself for free, and at worst, operating at the edge of legality.
The Credit Repair Organizations Act prohibits credit repair companies from charging you before they've actually performed services, yet many do anyway. They promise to remove accurate negative information from your credit report, which is impossible. They file frivolous disputes hoping bureaus won't verify the information within the 30-day window. Some even tell clients to lie or create fake identities, which can land you in legal trouble.
Lokenauth puts it bluntly: "I've had too many clients get burned by sketchy credit repair companies charging hundreds per month with empty promises. They often use illegal practices like filing false disputes.” David Kindness adds that "some credit repair companies go as far as disputing true information or telling clients to lie or create fake identities, which can get you into legal trouble."
Credit counseling agencies, on the other hand, can be genuinely helpful. These are typically nonprofit organizations that help you analyze your finances, create a budget, and develop a realistic debt management plan. They can also negotiate with your creditors for better terms, lower interest rates, or modified payment plans.
Chris Fohlin explains that "credit counselors can educate you about credit scores and ways to improve them, providing hands-on support like building a debt management plan and negotiating with your credit card companies for better terms."
The National Foundation for Credit Counseling is a reputable place to start looking for affordable, legitimate credit counseling services. They offer education, budgeting support, and debt management plans without the predatory practices of credit repair companies.
Bottom line? Save your money. Everything a credit repair company can legally do, you can do yourself for free. If you need support and education, go with a nonprofit credit counselor.
This is the strategy nobody wants to hear, but it's the most important one: credit repair takes time. There's no way around it. The negative items on your credit report aren't going away overnight, and rebuilding trust with the credit scoring system is a gradual process.
Different types of negative information stay on your credit report for different lengths of time:
As these negative items age, they impact your score less and less. A two-year-old late payment hurts less than a two-month-old late payment. And once they hit their expiration dates, they automatically fall off your report.
In the meantime, every month of on-time payments and responsible credit management is building positive history. The longer you go without new negative marks, the more your score recovers.
Chris Fohlin offers realistic perspective: "Rather than trying for a perfect score of 850, it can feel more realistic to focus on reaching the next threshold to become more qualified. For example, if you're looking to get a mortgage loan or car financing, you should aim for a credit score of 700 or higher to help you qualify and get a more comfortable interest rate."
Let's talk about what different credit score ranges actually mean when you're ready to apply for a mortgage.
800-850 (Exceptional): You'll qualify for the best available rates and terms. Lenders are competing for your business at this level.
740-799 (Very Good): Still excellent credit. You'll qualify for top-tier pricing on most loan programs.
670-739 (Good): Solid credit. You'll qualify for most loan programs, though you might not get the absolute lowest rates.
580-669 (Fair): You'll face more limitations. Conventional loans typically require 620 minimum, though FHA loans accept scores as low as 580 with a 3.5% down payment (or 500-579 with 10% down).
300-579 (Poor): Very limited options. You'll likely need to work on credit repair before qualifying for most mortgage programs.
According to HUD's FHA loan requirements, "borrowers with credit scores of 580 and above qualify for the maximum 96.5% LTV" while those "with credit scores between 500 and 579 are limited to 90% LTV.” As of November 2025, Fannie Mae no longer enforces a hard 620 minimum credit score requirement, though Freddie Mac and individual lenders may still set their own minimums. Most conventional lenders continue to prefer scores of 620 or higher.
VA loans, backed by the Department of Veterans Affairs, don't have an official minimum credit score requirement, but most lenders set their own minimum around 620-640. USDA loans for rural properties typically require around 640.
When you're ready to apply for a mortgage, lenders like AmeriSave will look at your middle score from all three bureaus. So if your scores are 680, 695, and 705, they'll use 695. This is why it's important to check all three reports and dispute any errors on all three, not just the one with the lowest score.
Let me tell you about the mistakes I see people make over and over again, because maybe if you read this, you'll avoid them.
Mistake #1: Closing accounts after paying them off. I've already beaten this drum, but it's such a common mistake it's worth repeating. Keep those accounts open unless there's a compelling reason to close them.
Mistake #2: Only paying minimums forever. Yes, paying minimums on time is better than missing payments. But if you only ever pay minimums, you're paying exponentially more in interest and it takes years longer to pay off debt. Whenever you have extra money-a tax refund, a bonus, even $20 from a side gig-throw it at your debt.
Mistake #3: Applying for too many new accounts too quickly. Each hard inquiry drops your score a few points, and opening new accounts lowers your average account age. Space out new credit applications by at least six months when possible.
Mistake #4: Ignoring the statute of limitations on old debts. If you have very old debt in collections, check your state's statute of limitations. In many states, debt collectors can't sue you for debts beyond a certain age (usually 3-6 years, varies by state and debt type). Making a payment or even acknowledging the debt can restart that clock. If you're close to the statute of limitations expiring, consult with a lawyer before taking action.
Mistake #5: Focusing on score instead of behavior. Your credit score is a lagging indicator-it reflects past behavior. Instead of obsessing over the number, focus on the behaviors that lead to a good score: paying on time, keeping balances low, not opening unnecessary accounts. The score will follow.
Mistake #6: Falling for "credit monitoring" upsells. Those free credit report sites often try to upsell you on credit monitoring services. You don't need them. Between the free reports from AnnualCreditReport.com and the free scores from your bank or credit card, you can monitor your credit effectively without paying monthly fees.
This is the question everyone asks, and I get it-you want a timeline. Unfortunately, there's no one-size-fits-all answer. It depends on what's dragging your score down and how aggressive you are about addressing it.
For minor issues (errors, slightly high utilization): 1-3 months
You dispute errors, they get removed within 30-45 days, your score bumps up. You pay down some balances to get under 30% utilization, your next statement cycle reports lower balances, your score improves. These changes can happen relatively quickly.
For moderate issues (recent late payments, high debt): 3-6 months
You start making consistent on-time payments, gradually pay down balances, your score begins climbing. After six months of perfect payments, lenders start seeing a pattern of responsibility.
For significant issues (collections, charge-offs, multiple late payments): 6-12 months
These negative marks don't disappear, but their impact lessens over time as you build positive payment history. You're essentially outweighing the bad with good. Many lenders will consider your recent payment history more heavily than older negative marks if you can demonstrate 12 months of perfection.
For major credit damage (bankruptcy, foreclosure): 12-24 months minimumThese are the most serious negative marks. A Chapter 7 bankruptcy stays on your report for 10 years, a foreclosure for 7 years, but their impact diminishes significantly after 2-3 years if you've rebuilt positive credit. FHA loans become available just 2 years after a bankruptcy discharge if you can demonstrate responsible credit use since then.
I'm being straight with you here: if you're looking to buy a house soon and your credit needs significant work, start now. Like, today. Every month matters. Every on-time payment counts. Every bit of debt you pay down helps.
Okay, so you've read all this information. Now what? Here's your actual step-by-step action plan:
When your credit is better, lenders like AmeriSave can help you look at your mortgage options. They can show you what programs you now qualify for and help you find the best rate across different types of loans.
Ugh, I hate that phrase, but it fits here: your credit score is one of the most important financial numbers in your life. It can determine whether or not you get a mortgage, what interest rate you pay, whether or not you qualify for the best credit cards, and sometimes even whether or not you get hired for a job or approved for an apartment lease.
A lot has changed in the mortgage business since I started working there at 18, but one thing that hasn't changed is that credit scores are very important. I've seen people lose their dream homes because someone with a higher credit score offered the same price but got better financing. Families have paid tens of thousands of dollars more over the life of their loan because they didn't take the time to raise their score before applying.
But I've also seen the other side. I've seen borrowers like Maria go from feeling hopeless to getting the keys to their first home. With hard work, I've seen credit scores go from the low 600s to the mid-700s in less than a year. It can definitely be done.
Fixing your credit isn't fun. It doesn't happen quickly. There is no hack or trick that will let you get around the basic requirement of showing that you are financially responsible over time. But if you promise to pay on time, keep your balances low, contest real mistakes, and give yourself time to build a good history, your score will go up. That's not a maybe; it's a when.
And when you're ready to move on and see what you can do next, I suggest you look at your options and see what's out there for you. AmeriSave has a lot of different loan programs, like FHA, VA, and USDA loans, and they can show you how your better credit score will affect your monthly payments. Knowing your options helps you make the best choice for your financial future, whether you want to buy your first home or refinance to get better terms now that your credit is better.
You can do this. Get those credit reports today. If you stay focused, you'll be amazed at how much you can get done in six months. You can trust me on this one. I've helped hundreds of people get through this process, and the ones who take it seriously are the ones who are getting homes.
Ready to see what you qualify for with your improved credit score? Explore AmeriSave's mortgage options and get a personalized rate quote that shows how your hard work on credit repair translates into real savings.
To be honest, the answer is almost always no. You can do everything a credit repair company can do for free. The Federal Trade Commission is very clear about this: credit repair companies cannot remove correct negative information from your credit report, no matter what. What they usually do is file disputes for you. You can do this yourself on each credit bureau's website. The CFPB says that a lot of credit repair companies charge hundreds of dollars up front for services they never deliver.
If you need help understanding credit or making a plan to pay off your debts, you can get help from a nonprofit credit counseling agency that has been certified by the National Foundation for Credit Counseling. They'll teach you, help you make a plan that makes sense, and sometimes even get your creditors to agree to better terms. They also charge a lot less than credit repair companies that make money.
What's the bottom line? Instead of hiring a credit repair company, use the money you would have spent on one to pay off your debts. That will help your credit more quickly than any business can.
Yes, but there are some important things to know. Most bad things, like late payments, collections, charge-offs, and foreclosures, have to be taken off your credit reports seven years after the first time you were late. After seven years, Chapter 13 bankruptcies also go away. However, Chapter 7 bankruptcies stay on your credit report for ten years from the date you filed.
This is where people get mixed up: The seven-year clock starts on the date of the first missed payment, not the date the account went to collections or was charged off. The 7-year period starts in January 2018 if you missed a payment in that month and the account was charged off in July 2018. The item should no longer show up on your credit reports in January 2025.
Some debts, like unpaid tax liens or federal student loans that are in default, can stay on your report forever until they are paid off. If someone sues you and wins, the judgment can stay on your record for seven years or until your state's statute of limitations runs out, whichever comes first.
Credit bureaus are supposed to automatically delete things that are no longer valid, but mistakes happen. You should check your credit reports often because if you see negative items that should have gone away, you can dispute them.
It all depends on the type of loan. Most lenders want you to have a credit score of at least 620 for a conventional loan backed by Fannie Mae or Freddie Mac. Some lenders want you to have a score of 640 or higher. Fannie Mae eliminated its minimum 620 credit score requirement in November 2025 (Selling Guide Announcement SEL-2025-09), allowing its Desktop Underwriter system to evaluate borrowers below 620 based on a comprehensive financial profile rather than a hard credit score cutoff. However, individual lenders may still impose their own minimum requirements.
You can get an FHA loan with a score as low as 580 and a 3.5% down payment, or even 500–579 and a 10% down payment. There is no official minimum for VA loans, but most lenders want to see at least 620 to 640. Most of the time, USDA loans need about 640.
But here's the thing: getting the best rate and qualifying are not the same thing. You might be able to get an FHA loan with a score of 580, but you'll pay a lot more in interest than someone with a score of 740 or higher. On a $300,000 loan, the monthly payment difference can be huge-$100–200 per month, or $36,000–72,000 over 30 years.
So, even though 620-640 might get you in the door, if you want better rates and terms, you should aim for 700 or higher. If my borrowers have time to improve their credit before buying, I tell them to aim for that "good" score.
Okay, let's be honest for a minute. If you want to go from 550 to 700, you'll probably have to work hard for 6 to 12 months. If you're at 650 and want to get to 700, it might take 3 to 6 months. But these are just guesses based on doing everything right: paying on time every month, paying off a lot of debt, and disputing and fixing any mistakes.
Errors and credit utilization are two things that can get better quickly. Your score can go up by 20 to 50 points in one statement cycle if you pay off your credit card balances from 80% to 20%. If you successfully dispute and get rid of an error or old collection account, you could see a difference in 30 to 60 days.
Payment history is one thing that can't get better quickly. You can't change late payments from the past, but you can make up for them by making payments on time in the future. You can't speed up the length of your credit history; it grows at the same rate as time.
Andrew Lokenauth says that he's seen clients' scores go up by more than 100 points in six months by using aggressive debt payoff strategies. However, this requires a lot of debt to be paid off and a perfect payment history during that time. You can do it, but you have to be really committed and usually have some extra money to throw at your debt.
Be honest with yourself about how long it will take. You might have to wait if you need to buy a house in three months and your credit needs a lot of work. But if you have 6 to 12 months, you can probably make a lot of progress.
No. This is the big lie that dishonest credit repair businesses tell. Credit bureaus have to keep information on your credit report for the legally required amount of time if it is correct, which means you really did miss those payments or that account really did go to collections. You can't get rid of correct information just because you don't like it.
You can ask creditors to add more information if you want. If you missed payments because of a medical emergency, losing your job, or getting a divorce, you can write a 100-word statement explaining what happened. This statement goes on your credit report, which future lenders can see. It won't change your score, but it could help a human underwriter understand the situation when they look over your application.
Some creditors will agree to a "pay for delete" deal, where they take down a collection account in exchange for money. However, this is becoming less common, and you can't force them to do it. They don't have to agree to it by law.
If you have accurate negative information, the best thing you can do is build a positive history around it to lessen its impact. Over time, as the bad marks get older and you show that you can use credit responsibly, they will naturally have less of an effect on your score.
A lot of the time, young people or new immigrants who haven't had a chance to build credit yet do this. When you apply for a loan, having too little credit history can be almost as bad as having bad credit history.
Here's how to start building credit:
The most important thing is to start somewhere, even if it's small, and make sure you always pay on time. After 6 to 12 months of good credit history, you'll be able to get better credit products and, eventually, a mortgage.
This is hard, and the answer depends on a number of things. The time limit for debt (when collectors can't sue you anymore) is different for each state and type of debt. It usually lasts between three and six years. The time it stays on your credit report is seven years after the first time you missed a payment.
If you have a recent collection account and the debt is real, paying it off or settling it is usually the right thing to do, both morally and practically. Some newer credit scoring models, like FICO 9, VantageScore 3.0, and VantageScore 4.0, don't count paid collection accounts at all. However, many mortgage lenders still use older models that do count them.
If the collection account is old-like six years old-and you're within a year of it coming off your report, paying it off could actually restart the statute of limitations in some states, which would keep the account "active" longer. In this case, you might want to let it age naturally instead of poking it.
Most lenders want to see that you have either paid off your collections or set up a payment plan before they will give you a mortgage. Paying off a collection might not help your score much, but it might be necessary to get a mortgage. At AmeriSave, we can help you understand what underwriters will look for in collections based on your unique situation and the loan program you want to use.
If you're dealing with a lot of collections, especially if you're close to the statute of limitations, you should talk to a lawyer or credit counselor. It's not always easy to make a choice.
No. This is a myth that won't go away. When you check your own credit, which is called a "soft inquiry" or "soft pull," it doesn't change your credit score at all. You can look as often as you want.
When you apply for credit and a lender looks at your full credit report to make a decision, this is called a "hard inquiry." This hurts your score. Most of the time, a hard inquiry lowers your score by a few points (usually less than 5). However, the effect gets weaker over time and goes away completely after 12 months.
When you're rate shopping for a mortgage or car loan, hard inquiries won't hurt you. FICO scoring models know that responsible people look for the best rates, so if you apply for more than one mortgage or auto loan within 14 to 45 days (depending on the scoring model), they usually only count as one inquiry.
So make sure to check your credit often. Set a reminder to get your free reports from AnnualCreditReport.com every four months, switching between the three bureaus each time. You can check your score for free through your bank or credit card. The better you know your credit profile, the more likely you are to spot mistakes or fraud early.
Your income does not affect your credit score, no. If two people have the same credit habits, one can make $30,000 a year and the other can make $300,000 a year and still have the same credit score.
Income does affect your ability to get loans and how much you can borrow. Your debt-to-income ratio (DTI) is the amount of money you owe each month divided by your gross monthly income. Most regular mortgages need a DTI of less than 43–45%, and many lenders would rather have a DTI of 36% or less.
Your income doesn't directly affect your score, but it does matter when it comes to getting a mortgage. You could have an 800 credit score, but if your debts are too high compared to your income, you won't be able to get the loan amount you want.
When you apply for a mortgage, lenders check your credit score to see if you pay your bills on time and your income/DTI ratio to see if you can afford the new payment. Both are important, but in different ways.
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