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How to Fix Bad Credit to Buy a House

Buying a home is an exciting – and frightening – event. Purchasing a house, condo, timeshare, or any other type of property is a substantial financial decision. If the stress of finding your dream home wasn’t bad enough, the fear of applying for a mortgage, only to be rejected, is the stuff of nightmares. If your credit score isn’t perfect – don’t worry. Here are tips on how to fix bad credit to buy a house.

Steps to Repair Your Credit Before Buying a Home

Bad credit impacts your everyday life in a variety of ways. It can make it tougher to get insurance and change your job prospects. It can also keep you from getting the best terms on loans and mortgages. You might even get rejected for mortgages – making homeownership only a dream.

Fortunately, bad credit isn’t permanent. There are basic steps you can take to raise your credit score and improve your homeownership odds.

Check Your Credit Report

The first step you should take when boosting your credit score for buying a house is to check your credit report.

“Check your credit report” is a misnomer, though. There isn’t just one credit report. There are three credit reports that matter – those from the three major credit bureaus: Equifax, Experian, and TransUnion.

The goods news about checking your credit reports is that federal law states all Americans have access to one free credit report from each bureau every year. To access your free credit report, visit www.annualcreditreport.com.

Check your reports to see if there are any errors. Common mistakes on credit reports include collections and late payments – both of which can lower your credit score significantly. If you spot errors, contact your lenders and the credit reporting bureau to dispute the credit report faults..

If you encounter problems with credit disputes, you can contact a law firm that specializes in financial law, bankruptcy, or credit law.

Related Article: What is the Fair Credit Reporting Act?

Pay Down Your Credit Card Balances

Reducing existing credit card and loan balances is essential for repairing credit. According to Experian, “amounts owed” accounts for 30% of a person’s FICO Score.

“Amounts owed” is also known as credit utilization and refers to the total amount of available credit in use. Credit experts agree that keeping credit utilization below 30% is essential for raising your credit score. For best results, however, aim to keep your credit use at 10% of less – doing so will supercharge your credit score and help you reach your homebuying goals sooner.

Paying down balances also boosts your payment history – which is the most significant factor in calculating a FICO Score. Since payment history and credit use account for two-thirds of your credit score, paying down balances is one of the most critical steps you can take to fix bad credit and improve your credit score.

Tips for paying down your credit card debts:

  • Make payments on your credit cards twice per month
  • Set up automatic payments

Setting up automatic payments (or autopay) can help you avoid missed payments and late fees – both of which can derail your plan to fix your bad credit. Making additional payments is another great option, as it helps you avoid cover at least your minimum payment due – and it enables you to reduce your balances quickly.

Negotiate with Creditors

If you have debts that you are struggling to meet – or if you have accounts in collections – don’t lose hope. Contacting your creditors directly is an easy – and effective – way to reduce and restructure your debt.

Many banks, lenders, and creditors are willing to work with customers to help them manage their payments. After all, creditors want to get paid, and they will do whatever they can to make getting paid back as painless as possible.

You can negotiate directly with your creditors or use third-party, non-profit debt help organizations. Either way, always be sure to get any settlements and agreements in writing to verify the information. A written document will ensure any agreement also reflects on your credit report.

Only Open New Accounts Strategically

New credit only accounts for 10% of your FICO Score. That said, too many new accounts can make lenders – including mortgage lenders – warier about your financial situation. Too many hard inquiries – or thorough checks of your credit reports – make you appear financially stretched, which can make banks less likely to offer you a mortgage.

When repairing your credit, you should aim to keep new credit inquiries to a minimum. Ideally, you want to keep hard inquiries to four or fewer per year. Since applying for a mortgage will result in one or two inquiries, this means you need to be strategic with any other applications.

Secured Credit Cards

A secured credit card is an excellent way to avoid too many hard inquiries and fix bad credit at the same time. Because secured cards require a deposit, they are easier to get than other credit cards. Even better, often secured cards don’t require a credit check.

The security deposit requirement of secured cards is beneficial, as it allows you to set your own credit limit. If you want to reduce your credit utilization quickly – make a larger deposit. If you want a simple tool for establishing a good payment history, a small deposit is sufficient.

Secured cards work best for making small purchases and repaying the balance in full each month. A secured credit card, in combination with other loan accounts, is an excellent way to rack up an impressive streak of on-time payments – leading to a credit score boost.

What Secured Cards Should You Consider?

The OpenSky® Secured Visa® is an excellent option to fix bad credit. The OpenSky Visa requires no credit check, has a modest annual fee, and reports to the major credit bureaus regularly.

The real bonus with OpenSky, however, is the vast educational resources that Capital Bank – the card’s issuer – provides users. The OpenSky knowledge base is full of information and tips for improving your credit score and is the perfect aid to get you to mortgage approval – fast.

OpenSky® Secured Visa®

No Credit Check to Apply

OpenSky® Secured Visa®
  • Regular Purchase APR 17.39% variable based on the Prime Rate
  • Cash Advance APR 17.39% variable based on the Prime Rate
  • Annual Fee $35
  • Credit Needed Poor , No Credit Required
  • Processing Network Visa
Best Benefits
  • Build credit with on-time payments
  • Reports to the three leading credit bureaus
  • Credit limist between $200 and $3,000
  • Visa benefits and protections
Rates & Fees
  • Regular Purchase APR: 17.39% variable based on the Prime Rate
  • Cash Advance APR: 17.39% variable based on the Prime Rate
  • Cash Advance Transaction Fee: Either $6 or 5% of the amount of each cash advance, whichever is greater.
  • Annual Fee: $35
  • Foreign Transaction Fee: 3% of each transaction in U.S. dollars
  • Late Payment Penalty Fee: Up to $38
  • Return Payment Penalty Fee: Up to $25
  • Minimum Deposit Required: $200
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Other Secured Options

Those who need to carry a balance should look to secured options like the Applied Bank Secured Visa Gold Preferred or the First Progress Platinum Prestige Mastercard®. Both cards feature an APR in the single digits, which is among the lowest rates anywhere – for both secured and unsecured credit cards. Both also feature similar annual fees ($48 for the Applied Bank Card and $49 for the First Progress Card).

Applied Bank Secured Visa® Gold Preferred® Card

No Credit Check or Minimum Credit Score Required

Applied Bank Secured Visa® Gold Preferred® Card
  • Regular Purchase APR 9.99%
  • Cash Advance APR 9.99%
  • Annual Fee $48
  • Credit Needed Poor , No Credit Required
  • Processing Network Visa
Best Benefits
  • Better than Prepaid...Go with a Secured Card! Load One Time - Keep On Using
  • Absolutely No Credit Check or Minimum Credit Score Required
  • Automatic Reporting to All Three National Credit Bureaus
  • 9.99% Low Fixed APR – Your Rate Won’t Go Up Even if You Are Late
  • Activate Today with a $200 Minimum Deposit – Maximum $1,000. Increase Your Credit Limit up to $5,000 by Adding Additional Deposits Anytime
Rates & Fees
  • Regular Purchase APR: 9.99%
  • Cash Advance APR: 9.99%
  • Cash Advance Transaction Fee: Either $5 or 5% of the amount of each cash advance, whichever is greater
  • Annual Fee: $48
  • Foreign Transaction Fee: 3% of the transaction amount in U.S. dollars
  • Late Payment Penalty Fee: Up to $38
  • Return Payment Penalty Fee: Up to $38
  • Minimum Deposit Required: $200
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First Progress Platinum Prestige Mastercard® Secured Credit Card

No Credit History or Minimum Credit Score Required

First Progress Platinum Prestige Mastercard® Secured Credit Card
  • Regular Purchase APR 9.99% variable based on the Prime Rate
  • Cash Advance APR 18.99% variable based on the Prime Rate
  • Annual Fee $49
  • Credit Needed Poor , No Credit Required
  • Processing Network Mastercard
Best Benefits
  • No Credit History or Minimum Credit Score Required for Approval
  • Quick and Complete Online Application
  • Full-Feature Platinum Mastercard® Secured Credit Card
  • Monthly Reporting to all 3 Major Credit Bureaus to Establish Credit History
  • 24/7 Online Access to Your Account
Rates & Fees
  • Regular Purchase APR: 9.99% variable based on the Prime Rate
  • Cash Advance APR: 18.99% variable based on the Prime Rate
  • Cash Advance Transaction Fee: Either $10 or 3% of the amount of each cash advance, whichever is greater
  • Annual Fee: $49
  • Foreign Transaction Fee: 3% of the transaction amount
  • Late Payment Penalty Fee: Up to $40
  • Return Payment Penalty Fee: Up to $29
  • Minimum Deposit Required: $200

Conclusion

Homeownership isn’t impossible with bad credit, but it is challenging. Repairing bad credit takes time, but it is something everyone can accomplish.

To fix your bad credit and make your goal of buying a home a reality, take the following steps:

  • Check your credit reports regularly
  • Dispute any errors you find on your credit report
  • Negotiate your debts with creditors
  • Pay down your balances
  • Always pay your bills on time
  • If you open new credit accounts, be strategic

Following these practical steps can start to fix bad credit and boost your credit score by 10, 20, or even 30 or more points in a matter of months. And every on-time payment and reduction in debt will get you one step closer to your new mortgage – and the home of your dreams.

Related Article: Credit Tips: How Long Does It Take to Rebuild Your Credit Score?

About: Cory
Cory Santos

Cory is BestCards.com's "Jack of all trades" and resident rewards expert, covering all facets of the points game – especially travel, hotels, and airlines. In addition to credit cards, Cory finds that jogging, cats, and memes are essential parts of a balanced day.