Bad credit can be a dream crusher, and there’s no part of life where this is more obvious than when it comes to your dreams of buying a house.
If you’re feeling like homeownership is always just out of reach due to poor credit, then there’s some good news—by following just a few credit repair tips, you can improve your credit and qualify for a mortgage in the relatively near future.
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What credit score is needed to buy a house?
The credit score you need to buy a home depends on the type of mortgage you’re applying for. There are several different types of mortgages, and their credit score requirements vary.
As the table below shows, an ordinary (“conventional”) mortgage requires a credit score of at least 620. Conventional mortgages are by far the most common type, accounting for 78.5% of home loans in the first quarter of 2022. 1 This means that 620 is the requirement for a “default” mortgage.
However, if you have a relatively low credit score, you may still be able to get a government-backed mortgage (one that’s insured by the federal government), such as an FHA loan. These loans generally have looser requirements.
Credit Score Required for Different Types of Mortgages
|Loan Type||Minimum FICO Credit Score|
|FHA loan (government-backed)||580 with a 3.5% down payment
500 with a 10% down payment
|VA loan (government-backed)||No set minimum, but generally 580–620|
|USDA loan (government-backed)||No set minimum, but 640 is required for streamlined application processing|
|Jumbo loan||700 to 740 (depending on the loan amount)|
Sources: US Department of Housing and Urban Development, US Department of Veterans Affairs, Fannie Mae, Freddie Mac, United States Department of Agriculture, Caliber Home Loans, Quicken Loans, and Rocket Mortgage.
Which credit score do mortgage lenders use?
You might have an idea of what your credit score is, but that doesn’t necessarily mean that you know what credit score lenders will see when you apply for a mortgage. That’s because you don’t just have one credit score—you have dozens, and it’s up to each lender which one they want to look at.
Most lenders will look at your FICO score when deciding whether to give you a loan (rather than your VantageScore credit score), but they might be using a different FICO scoring model than the one you’re using to check your credit.
Most mortgage lenders use one of three FICO models specially designed for the mortgage industry: 2
- FICO® Score 2, or Experian/Fair Isaac Risk Model v2
- FICO® Score 4, or TransUnion FICO® Risk Score 04
- FICO® Score 5, or Equifax Beacon 5
Unlike standard FICO scores, which range from 300 to 850, FICO mortgage scores (and other industry-specific FICO scores) range from 250 to 900, and they differ slightly in terms of how your credit score is calculated. 3
The good news is that you don’t have to understand the differences between your credit scores in detail to clean up your credit so you can buy a house. Your credit scores are strongly correlated with each other, and improving one will generally improve them all.
Other requirements for getting a mortgage
In addition to looking at your credit score and credit history, mortgage lenders will take several other factors into consideration when evaluating your application for a home loan:
- Income level
- Current debt obligations
- Down payment size
- Type of property you want to buy
- Debt-to-income ratio
- Employment status
When it comes to lending decisions, these factors matter just as much as your credit score and credit history because they contribute to your ability to repay your loan.
If you can increase the size of your down payment, pay down your existing debts before applying, or improve your standing in any of those other categories, you’ll have an easier time qualifying for a loan.
5 steps to repair your credit before buying a house
Once you’re financially prepared to take out a mortgage and you have a good idea of the type of loan you want, it’s time to focus on fixing, building, and improving your credit so that you can qualify for the best offers.
There are five steps you should take to get your credit in shape for a mortgage application.
1. Check your credit and dispute any errors on your credit report
Knowing the current state of your credit is key to figuring out what steps you need to take to prepare for a mortgage application. This includes checking your credit reports from all three credit bureaus (Equifax, TransUnion, and Experian) and checking your credit score.
Rest assured that checking your credit won’t lower your credit score—there are no negative consequences whatsoever, and it’ll put you in a better position to improve your credit score so you can buy a house.
How to review your credit reports
You can request all three of your credit reports for free at AnnualCreditReport.com. Carefully review each one to ensure that they’re accurate and identify areas for improvement.
If you spot any errors, get them removed as soon as possible by disputing the error on your credit report with the credit bureau that produced it. If your dispute is successful, they’ll remove the error in no more than 30 or 45 days. 4
How to check your credit score
You may be able to get your credit score for free by using an online credit-scoring website or checking your account statements from your creditors. However, whatever approach you take, make sure that you get your FICO score since this is the score that mortgage lenders will look at.
To guarantee that you get access to the score that’ll be used in your mortgage application, consider buying your credit score directly from FICO. You can choose from three subscription plans or just buy a one-time report. All of their products include your basic FICO score as well as your FICO score for mortgages, auto loans, and credit cards.
2. Pay down your current debts
If you already have other loans or credit card debt, then pay as much of it down as possible. You should also pay off your debts in collection if you have any.
Reducing your overall amount of debt will give you a better understanding of how much you can realistically afford to spend on a house. It’ll also benefit your credit score and boost your odds of mortgage approval by lowering your:
- Debt-to-income ratio: Lenders will look at your existing debts when calculating your debt-to-income ratio. This percentage gives them an idea of how much money you’ll be able to comfortably put toward paying off your mortgage.
- Debt-to-credit ratio: Your debt-to-credit ratio (also known as your credit utilization rate) reflects how much of your credit you’re using, and it’s a major factor that affects your credit score. Lowering it will boost your score and show mortgage lenders that you’re financially responsible. To lower this ratio, pay the balance on your credit cards as far down as you can.
3. Remove any negative marks from your credit report that you can
You’ll have a hard time buying a house if your credit history is full of derogatory marks. To convince a bank or other financial institution to give you the money you need to buy a house, you’ll need to clean up your credit history.
All of the following derogatory marks can bring down your score and serve as red flags for mortgage lenders:
- Late payments
- Accounts in default
- Debt settlements
It’s important to note that derogatory marks do more than just damage your credit score—they can disqualify you from certain types of mortgages altogether, as shown in the table below.
Negative Marks That Will Disqualify You from Getting a Mortgage
|FHA Loans||VA Loans||USDA Loans (Streamlined Processing)|
Most negative marks can stay on your credit report for 7 years (or 10 years for some bankruptcies), meaning that lenders will be able to see them when reviewing your mortgage application. 5
How to remove derogatory marks
To ensure that derogatory items don’t get in the way of you buying a house, try these approaches for removing negative marks from your credit report by yourself:
- Negotiate pay for delete: If your credit report contains negative items associated with an unpaid debt, you may be able to convince the creditor or debt collection agency reporting the account to remove the negative marks in exchange for payment. Use this pay-for-delete letter template to draft a letter proposing this type of deal.
- Send a goodwill letter: For small slipups you’ve already rectified (e.g., missed payments you’ve already caught up on), negative marks may still be bringing your score down. However, you can try politely asking your creditors to erase the negative marks using a goodwill letter template tailored to your circumstances.
By successfully clearing your credit report of negative marks, you’re undoing the damage to your credit and preventing lenders from seeing mistakes from your past that you’ve moved on from.
4. Build up good credit
Adding positive information to your credit file is just as important as fixing bad credit. This is particularly important if you have an insufficient credit history or you’ve never had a loan before.
When preparing to buy a house, start building credit sooner rather than later—ideally at least 1 year before applying for a mortgage. While there are credit hacks that’ll help you build credit fast, it takes time to see real results.
Here are steps you can take to build your credit to buy a house:
Get a credit-builder loan
Credit-builder loans function more like savings accounts than traditional loans. Each payment you make goes into an account that you only get access to at the end of the repayment period.
These loans will give you two major benefits that’ll help you prepare to buy a house:
- Experience with installment loans: There are three types of credit, and mortgages and credit-builder loans fall into the same category (installment loans). Showing that you repaid a credit-builder loan will give lenders more confidence in your ability to repay a mortgage.
- Money to put toward your down payment: The payments you make toward a credit-builder loan go straight back into your pocket at the end of the repayment period. This means a credit-builder loan can indirectly help you save for your mortgage down payment, which may broaden your options (and will also make repaying your loan easier).
Make on-time payments
Make sure your credit report shows a spotless payment history in the months leading up to your mortgage application. This will boost your credit score.
Your payment history is particularly important for two reasons:
- It’s the most important factor influencing your credit score
- It tells lenders how likely you are to repay your mortgage as agreed
If you have a history of missing payments, try setting up autopay or payment reminders to ensure that you’re always current on all your credit accounts.
5. Ask for rapid rescoring
Once you’ve taken steps to repair your credit so you can buy a house, it may take a while for your credit reports and scores to update. You can speed up the process by asking mortgage lenders for rapid rescoring.
Typically, your credit reports only update when data-furnishing companies (like your creditors) provide new or updated information to the credit bureaus. This usually happens once every 30–45 days. 7
Some mortgage providers offer rapid rescoring to speed up this process and get updated credit reports sooner—often within 2–3 days. 8 This is a good option if you want to fix your credit fast so you can buy a house as soon as possible.
Where to get help repairing your credit so you can buy a house
If you’re struggling to fix your credit on your own, then don’t worry—not all hope is lost. You can still improve your credit enough to buy a house by asking a professional for help.
Here are a few good places to start:
- Credit repair companies: If a bad credit history is keeping you from getting the credit score you need to buy a house, then paying for credit repair is one solution. Credit repair companies can’t do anything you can’t do yourself, but they can pursue the strategies described above more persistently than you might have the time or energy for.
- Credit counselors: If your credit score is too low to get a mortgage because you have too much credit card debt, then credit counseling may be a good option. A credit counselor can give you the tools and resources you need to get out of debt so that your finances and credit are prepared for a new credit account.
- Realtors and real estate agents: In addition to specialized credit repair companies, realtors can also help you fix your credit. They know the ins and outs of the mortgage industry and can give you tailored advice for how to get loan approval.
Can you buy a house with bad credit?
However, mortgages for people with bad credit often have drawbacks, like higher interest rates. This is to protect your lender from loss since they won’t be able to get the loan backed by Fannie Mae or Freddie Mac (the two largest mortgage buyers in the country), both of which require borrowers to have a credit score of 620 or higher. 9 10 11
If you can afford to wait to buy a house, then it’s best to wait until you’ve fully repaired your credit. Your wallet will thank you for taking the time to build up your credit enough to qualify for better loan terms—it could save you thousands of dollars over the life of your home loan.