A good credit record is your most important asset when buying a house. Here's how to clear your credit score and ensure you get the thumbs-up from your bank.
Article summary
- Make sure you maintain a good credit record. A good credit record goes a long way to getting bank approval for a bond.
- Maintain a good credit record by clearing outstanding debts, and paying your bills on time
- Check your credit record for errors, and lodge disputes with the credit bureau if you find any.
- It usually takes about three months for improvements to your credit record to register.
A good credit record is your most important asset when applying for a home loan. It’s the first thing banks look at when considering your application.
So ensure your credit record is clean, and here’s how you can do that.
What is a good credit score?
610 is the minimum you need for your application to be accepted.
Anything lower than that makes getting a home loan extremely difficult.
Here’s a more detailed rundown:
- 781 to 850. Excellent.
- 661 to 780. Good.
- 610 to 660. Fair.
- 500 to 610. Poor.
- 300 to 499. Very poor.
Find out your credit score
You can find out your credit score by getting prequalified with ooba Home Loans, or using our free, online tool; the Bond Indicator.
Clearing your credit score
If your credit score is low, it’s not the end of the world. There are measures you can take to improve it.
- Pay off your accounts.
- Pay bills on time.
- Check for court orders.
- Check for errors.
- Don’t apply for more than one loan at a time.
- Avoid spending up to your credit limit.
1. Pay off your accounts
Store credit, cell phone accounts, and bank loans – especially for other assets, such as a car – are a good place to begin.
A credit card also has a strong influence on your credit score, so try to include at least one of these in the mix. Paying back your credit card balance has a significant impact on your score.
2. Pay your bills on time
Doing so at the correct monthly installment, or even a little more, will help build a good credit score.
3. Check for court orders
..and any other such black marks there might be on your credit record.
Resolve the issue by paying the outstanding amount. The court order will be removed once the credit bureau receives proof of payment.
4. Check for errors
You can check your credit report for information that doesn’t seem correct, such as late payments that were actually paid on time.
You can lodge these disputes with the credit bureau, though you’ll need to provide evidence in the form of supporting documentation.
It usually takes 20 days for the credit bureau to investigate such disputes and correct the record.
5. Don’t apply for more than one loan at a time
Doing so will signal to lenders that your financial situation is deteriorating.
6. Avoid spending up to your credit limit
Generally, you’ll want to keep your spending below a third of your credit limit.
How long will it take for improvements to show?
According to businesstech.co.za, improvements usually start showing up on the credit record after around three months, but it’s recommended to wait about six months before reapplying.
Apply to multiple banks
You can improve your chances of getting a home loan, even with a lower credit score, by applying to multiple banks. Some might be more lenient than others.
ooba Home Loans can assist in this. We submit your home loan application to multiple banks, allowing you to compare deals and pick the best one.
In addition, we offer a range of tools that can make the homebuying process easier. Start with our Bond Calculator, then use our Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.
FAQs
If you want to improve your credit score fast enough to buy a house — say, in a few months — the best thing you can do is pay down current debt and avoid opening new accounts.
How can I improve my credit score to buy a house fast? ›
If you want to improve your credit score fast enough to buy a house — say, in a few months — the best thing you can do is pay down current debt and avoid opening new accounts.
What's a good enough credit score to buy a house? ›
You'll typically need a credit score of 620 to finance a home purchase. However, some lenders may offer mortgage loans to borrowers with scores as low as 500. Whether you qualify for a specific loan type also depends on personal factors like your debt-to-income ratio (DTI), loan-to-value ratio (LTV) and income.
What credit score is needed to buy a $300K house? ›
What credit score is needed to buy a $300K house? The required credit score to buy a $300K house typically ranges from 580 to 720 or higher, depending on the type of loan. For an FHA loan, the minimum credit score is usually around 580.
Should I fix my credit before buying a house? ›
Key takeaways. Your credit score is a crucial part of what a lender looks at when you apply for a mortgage to buy a house. Improving your credit score can also improve your financial health overall and help you get better terms for other major purchases, such as buying a car.
How to go from 670 to 700 credit score? ›
6 easy tips to help raise your credit score
- Make your payments on time. ...
- Set up autopay or calendar reminders. ...
- Don't open too many accounts at once. ...
- Get credit for paying monthly utility and cell phone bills on time. ...
- Request a credit report and dispute any credit report errors. ...
- Pay attention to your credit utilization rate.
On average, it takes about 5 months for your score to climb to its previous level as you make on-time payments, assuming the rest of your credit habits stay strong.
What credit score is needed to buy a $400k house? ›
Minimum Credit Score: 620
Suppose you can put 20% down on your $400k home and are otherwise able to qualify for a conventional loan. In that case, you'll probably get some of the lowest monthly payments available – apart from perhaps a VA mortgage.
How to get 800 credit score? ›
Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.
What credit score do I need to buy a 200 000 house? ›
You typically need at least a 620 credit score to qualify for a conventional loan. Though, the higher your score, the better your chances of getting approved for the best rates.
To purchase a $300K house, you may need to make between $50,000 and $74,500 a year. This is a rule of thumb, and the specific annual salary will vary depending on your credit score, debt-to-income ratio, type of home loan, loan term, and mortgage rate. Homeownership costs like HOA fees can also impact affordability.
Can I afford a 300k house on a 60k salary? ›
An individual earning $60,000 a year may buy a home worth ranging from $180,000 to over $300,000. That's because your wage isn't the only factor that affects your house purchase budget. Your credit score, existing debts, mortgage rates, and a variety of other considerations must all be taken into account.
How much do you need to make a month to afford a 200k house? ›
With a 5% down payment and an interest rate of 7.158% (the average according to Mortgage Research Center's rate tracker at the time of writing), you will want to earn at least $4,544 per month – $54,528 per year – to buy a $200,000 house. This is based on an estimated monthly mortgage payment of $1,636.
How do I clean up my credit report to buy a house? ›
Tips To Fix Your Credit Score: At A Glance
- Check your credit report often and look for errors.
- Focus on small, regular payments and control your spending.
- Reduce your high-balance accounts and use credit cards sparingly.
- Consider a debt consolidation loan.
- Work with a credit counseling agency.
How to improve your credit scores before buying a home
- Check your credit reports and scores. ...
- Select your target credit scores. ...
- Pay your bills on time. ...
- Raise your credit limits and reduce your debt balance. ...
- Avoid applying for new credit accounts. ...
- Consider credit counseling to get a handle on significant debt.
If you want to improve your credit quickly, the following strategies could help:
- Use a reputable credit repair service.
- Prioritize and pay outstanding debt.
- Explore secured credit cards.
- Become an authorized user.
- Develop a budget and stick to it.
15 steps to improve your credit scores
- Dispute items on your credit report. ...
- Make all payments on time. ...
- Avoid unnecessary credit inquiries. ...
- Apply for a new credit card. ...
- Increase your credit card limit. ...
- Pay down your credit card balances. ...
- Consolidate credit card debt with a term loan. ...
- Become an authorized user.
How Many Years Does It Take to Establish a Good Credit History? If you're just starting out, you can establish a credit history good enough to qualify for a mortgage within two years. This requires that you have a mix of different account types and make all of your payments on time, in addition to a few other things.
How many times does your credit get ran when buying a house? ›
An initial credit inquiry during the pre-approval process. A second pull is less likely, but may occasionally occur while the loan is being processed. A mid-process pull if any discrepancies are found in the report. A final monitoring report may be pulled from the credit bureaus in case new debt has been incurred.
Does owning property increase credit? ›
Your length of credit history makes up 15% of your FICO score. Since mortgage loans are long-term, they become an excellent boost to this part of your score over time. Every passing month in your home with a mortgage loan should improve your credit.
