How Long Does It Take to Improve Your Credit Score Enough to Buy a Home?

A new year means new goals.  If home ownership is one of them – it’s time to make sure your credit is in check.

How long does it take to improve your credit score? If you’re hoping to buy a home, having a good credit score is key, since it helps you qualify for a mortgage. So if your credit score is low, knowing how long it takes to raise it to home-buying range can help you plan.

While raising a credit score can’t happen overnight, it is possible to raise your credit score within one to two months. However, it could take longer, depending on what’s dragging down your score—and how you handle it. Here’s what you need to know.

How long does it take to raise a credit score?

First off, what’s considered a good score versus a poor one? Here are some general parameters:

  • Perfect credit score: 850
  • Excellent score: 760-849
  • Good credit score: 700 to 759
  • Fair score: 650 to 699
  • Low score: 650 and below

While it varies by area and type of loan, generally lenders will look for a score of 660 or higher to grant a mortgage (here’s more on the minimum credit score you need for a home loan).

If you’re looking to boost your credit score fast, here are some actions you can take.

Correct errors on your credit report

Correcting errors on your credit report is a relatively quick way to improve your credit score. If it’s a simple identity error—like a credit card that’s not yours showing up—you can get that corrected within one to two months.

If it’s an error on one of your accounts, though, it could take longer, because you need to involve your creditor as well as the credit bureau. The entire process typically takes 30 to 90 days. If there’s a lot of back-and-forth between you, the credit bureau, and your creditor, it could take longer.

The first step to correcting errors is to get a copy of your credit reports from TransUnion, Equifax, and Experian (the three major credit bureaus), which you can do at no cost once a year at annualcreditreport.com. Next, review them for errors. If it’s an error on one of your accounts, you must refute that error with the bureau by providing documentation arguing otherwise. For example, if you paid a credit card on time and the card issuer is reporting a late payment, find a bank statement showing that you paid on time.

Credit bureaus typically have 30 days to investigate the error. If they agree that it’s an error, they will remove the item. The credit bureau may also ask for additional information or ask you to discuss the information with the creditor involved. If that’s the case, stay on top of communications with your creditor so you can get things resolved as quickly as possible.

Deal with delinquent accounts

Bringing delinquent accounts current and settling accounts that are in collections can also boost your score fairly quickly. Once the creditor or collection agency reports your account update, you should see a positive bump in your score. Keep in mind, though, that your late payment history will remain on your credit report for seven years.

If you have bad accounts that have been on your report for six years or more, you may not want to worry about settling them or bringing them up to date. This can re-age the account, and if you fall behind again, it will stay on your credit report for another seven years.

“Make sure you don’t re-age these accounts, because they’re going to drop off soon,” says Nathan Danus, CDMP and Director of Housing and Community Development at DebtHelper in West Palm Beach, FL. Negative information typically “falls off” your credit report after seven years, so if you’re close, it’s best to just wait it out.

Lower your credit utilization

Credit utilization refers to how much you owe compared with the amount of credit you have available. For example, if you have a $10,000 credit limit across all your credit cards and you have balances totaling $9,000, you’ve utilized 90% of your credit. This drags down your credit score.

“What these consumers often need to do is pay down the balances on their existing credit accounts, which can be a challenge if they’ve allowed the balances to creep up over time,” says Martin H. Lynch, compliance manager and director of education at Cambridge Credit Counseling of Agawam, MA. “The ratio of what’s owed to the amount of credit available represents 30% of the consumer’s score, so rapid improvement is possible if there’s a large amount of money available to pay down balances.”

Linda L. Jacob, a financial counselor at Consumer Credit of Des Moines, IA, recommends paying down balances to below one-third of your credit line. Any payments you make will be reflected on your credit report as soon as your creditors report your payment to the credit bureaus. Credit scores are updated on an ongoing basis, and creditors typically report once per month, so if you make a payment that lowers your credit utilization, that should be reflected on your credit score within two months.

If you’re regularly using your credit card but you want to keep your utilization low so you can apply for a mortgage, you may want to pay down your credit-card balance on a weekly or biweekly basis. This ensures that your balance is as low as possible whenever your creditor reports your payment history to the credit bureaus.

You can also decrease your card utilization by getting more credit, but this approach can backfire. Consumers sometimes assume that by getting more credit, their credit score will improve. If you have a $3,000 balance on a card with a $4,000 credit limit and you’re approved for a new credit card with a $1,000 limit, you now have $5,000 in total credit lines. Instead of using 75% of your available credit, you’re now using 60%. That’s better, right?

Not necessarily. “Just applying for credit lowers your credit score, and that effect lasts for months,” warns Mike Sullivan, personal finance consultant at Take Charge America in Phoenix, AZ. “For the first few months after you apply for credit, your credit score may actually go down.”

You can try getting around this by asking a credit limit increase on a card you already have. Be sure to ask whether they do a “soft” credit pull rather than a “hard” credit pull, though, since hard credit inquiries are the ones that impact your credit. A creditor may be willing to give you a credit line increase with a “soft” pull, which will not hurt your credit score.

Soft inquiries are for background purposes only. For example, a credit card company may do a soft pull to see if you’re eligible for certain credit card offers, or an employer may do a soft pull before offering you a job. Soft pulls can be done without your permission and do not impact your credit score. Hard pulls require your permission, and are done when lenders or credit card companies are assessing whether to grant you a loan or line of credit.

How to raise your credit score for the long haul

Once you’ve corrected errors, settled your delinquent accounts, and brought your credit utilization under control, the only other things that will improve your score are time and developing good payment habits. For example, if you tend to forget to make payments, you can set up automatic payments so you don’t forget.

And here’s some good news for people with bad credit: Generally, people with the lowest scores will see the biggest gains the fastest.

“It’s a lot like dieting,” says Sullivan.

For instance, if your score is 550, “you could probably get it up 30 points in a matter of a couple months, if you’re really dedicated and really careful,” he explains.

On the other hand: “If your credit score is already a 750 and you’re trying to get it to 780, that can take double or more the time.”

Still, it’s worth doing whatever you can to get the best interest rate possible.

For more smart financial news and advice, head over to MarketWatch.

Melinda Sineriz is a writer living in Bakersfield, CA. She writes about personal finance and real estate for several websites and businesses.

I read this article at:  Realtor.com

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10 Ways Homebuyers can Improve Credit Scores

10 ways homebuyers can improve credit scores

Buyers will find it easier to get a home loan using these tips…

 

by Johnson Fedrick

 

Key Takeaways

  • It’s better to have two credit cards if you are a definite credit card spender.
  • Maintain a good mix of good and bad loan, AKA a healthy credit mix.
  • Close your unwanted savings bank accounts.

 

Real estate is a booming business in the world. To get loans quickly, potential homebuyers need to keep an eye on their finances and credit.

 

Below, you will find 10 general tips that will help ease the process of acquiring a home loan by improving credit scores.

 

  1. Always pay on time

No lender likes to lend money to an individual who has a repeated record of missing his payments. This indicates a lack of discipline and poor financial management, and it leads to a bad impression on paper.

Whether it was intentional or due to genuine reasons is immaterial. If you have a frequent history of missing your equated monthly installment (EMI), you will end up with a lower FICO score.

 

  1. Keep your credit owed within limits

A good ratio is not having your unsecured credit outstanding above 50 percent of your annual salary. Keep your credit card balances within half of the allowed limit. If you have $10,000 as your limit, then it is wise to restrict your statement amount to $5,000.

 

  1. Always pay your dues on time, in full

This is one of the most important tips to improve credit score: On-time payments improve your credit score tremendously. It carries almost a 40 percent weight on your score. So try not to miss your due dates for EMIs and monthly payments.

Nobody likes a person who cannot keep up his or her word, especially with banks. So pay in full and on time. Why should you suffer unnecessary late payment charges and interest?

 

  1. Use two credit cards if you are a definite credit card spender

This is good and bad advice at the same time. FICO does not consider spending money on two credit cards as one. But if you have two credit cards, you can keep your usage percentage in control.

For example, if you have a credit card with a limit of $20,000, and you charge $15,000 on it, you’ve used 75 percent of your credit limit.

Now if you split your amount into two, and spend $7,500 each, then the percentage of usage will be around 37 percent. So it helps you in the eyes of FICO.

Now, don’t go on a credit card shopping spree.

 

  1. Maintain a good mix of good and bad loans — AKA, a healthy credit mix

Home loans and business loans are considered good loans. Personal loans and credit are considered bad loans.

That is why investing in a home loan if you are a spendthrift is a better decision. You will have a good credit mix and be building an asset.

 

  1. Pay high-interest loans and small loans first

It is a prudent decision to pay your home loans over longer periods. Pay off your personal loans, credit cards and private loans first, as they tend to have a higher interest (typically 15 percent to 36 percent) with no asset creation.

Home loans, on the other hand, are just 9 percent to 11 percent, but they build an asset. This is one of the underutilized logical tips to improve credit score.

 

  1. Close your unwanted savings accounts

Many people tend to abandon their savings accounts without closing them. If you have less than your Minimum Average Balance (MAB), it will start to affect your credit score. Also, when you finish a loan, it’s imperative to get the loan closure certificate.

 

  1. Check your credit reports regularly

Credit reports can be availed for a minimal cost. You can obtain them from the official FICO site. Just pay online and check your credit score at least once in a year, so that you can seek clarification on any mistake and have it sorted. There have been cases when banks report you to FICO by mistake.

 

  1. Monitor your co-signed joint accounts properly

In instances of co-signing a loan or maintaining a joint credit account, be careful when dealing with someone outside your close family. You need to monitor the statements closely to make sure everything is in order.

There is no use complaining if you chose the wrong joint holder who was careless.

 

  1. Negotiate if you cannot pay on time

This is also one of best tips to improve credit score. People often know that they would not be able to pay their bills in advance. Regardless, they do not take any action.

If you know you will not be able to pay on time, negotiate with your bank. Banks will be willing to extend your loan period and reduce the EMI if they see a genuine customer.

It might hurt, but you will make a good impression, and the bank will see you are honest.

 

So these are some of the tips to keep your credit score in check and get a home loan easily.

I read this article at: http://www.inman.com/2016/07/13/10-ways-homebuyers-can-improve-credit-scores/?utm_source=emailsubscribers&utm_medium=email&utm_campaign=inmanbest&utm_content=1

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FHA Trims Waiting Period for Borrowers Who Experienced Foreclosure

Great news for those who experienced hardships during the economic downturn!

FHA Trims Waiting Period for Borrowers Who Experienced Foreclosure

The Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to reenter the market in as little as 12 months, according to a mortgage letter released Friday.

Borrowers who experienced a foreclosure must wait at least three years before getting a chance to get approved for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered even earlier.

For borrowers who went through a recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were from loss of employment or loss of income that was beyond the borrower’s control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.

Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and complete housing counseling.

According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.

The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30, 2016.

I read this article at: http://www.dsnews.com/articles/fha-trims-waiting-period-for-borrows-who-experienced-foreclosure-2013-08-19

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25% of Consumers Have Errors on Credit Report – I WAS DECEASED! Great article – had to share!

When I came across this article I had to share it.  I also have to laugh – when my husband and I bought our first home and our credit was run – it came back that I was deceased!!!!  What really made me laugh though was that all my payments – from the grave  – were on time!  Since you cannot get a mortgage if you are not breathing, I called my bank and corrected their error; within a month my credit report stated I was alive again.  Sadly, we went through this again when we bought a car a few years later.  This time my husband wad deceased.  Instead of friendly help from our credit union, they hung up the phone and said they couldn’t help us.  So my husband went to a notary who certified that the man before him, was alive and well and with that notarized document we were able to correct his credit report.  Thankfully the dealership wasn’t too concerned and we bought the car before the correction – nonetheless – the moral of the story here…  Check your credit report YEARLY!  You can do so for free on sites like www.annualcreditreport.com , and monitoring it yearly will keep surprises to a minimum when trying to buy a home!  Enjoy this article from the Daily News…

25% of Consumers Have Errors on Credit Report

Consumers need to be extra vigilant about checking for any errors on their credit reports, according to the Federal Trade Commission.

One in four Americans report they’ve found an error on their credit report, according to a study conducted by the FTC, which analyzed 1,001 consumers’ credit reports from the three major agencies, Equifax, Experian, and TransUnion. Researchers helped the consumers spot potential errors on their reports.

Five percent of the consumers found such large errors on their report that they could have gotten stuck paying more for mortgages or other financial products, if they hadn’t taken steps to correct it before applying, according to the study.

Twenty percent of the credit reports studied that were found to have errors in it were ultimately corrected after the consumer took steps to dispute it, which resulted in about 10 percent of consumers receiving a higher credit score, according to the study.

Consumers are entitled to receive a free copy of their credit report each year from the three reporting agencies.

Source: “Study: 1 In 4 Consumers Had Error In Credit Report,” The Associated Press (Feb. 11, 2013)

I Read this article at:  http://realtormag.realtor.org/daily-news/2013/02/12/25-consumers-have-errors-credit-report?om_rid=AACmlZ&om_mid=_BRGpXlB8w0qair&om_ntype=RMODaily

 

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