6 Steps to Build or Repair Your Credit Before Buying a Home

Follow these 6 steps to build or repair your credit before house hunting so you get approved for a mortgage that costs as little as possible.

Laura Adams, MBA
11-minute read
Episode #529

2. Correct any credit errors.

If you review your credit reports and find errors, such as an account that isn’t yours or a bankruptcy you never filed, it’s an urgent matter that you need to correct quickly. You could be the victim of identity theft and need to report the matter to the Federal Trade Commission at identitytheft.gov.

Using the bureau’s website is the fastest and easiest way to file a credit dispute, and federal law allows you to do it for free.

But smaller errors, such as in incorrect credit limit or a late payment that you didn’t make, may be easy to clear up by speaking directly with your creditor. It’s also a good idea to go ahead and submit a formal dispute with the credit bureau showing the error.

Using the bureau’s website is the fastest and easiest way to file a credit dispute, and federal law allows you to do it for free. You’re asked to give a clear and concise explanation of why you believe the information is incorrect. You can upload or mail any supporting documents to help sort the matter out.

Then the credit bureau opens a dispute case and contacts the creditor that submitted the questionable information. Your creditor has up to 45 days to respond. If they don’t, the credit bureau makes the correction that you requested and sends you an updated credit report.

If your creditor responds in time, but doesn’t agree with you and won’t make an adjustment to your credit report, you can add a statement of explanation to your credit file. That allows you to tell your side of the story in up to 100 words. Future creditors and merchants may take your statement into consideration when evaluating you.

Any information you add to your credit history remains there for as long as the disputed account appears in your credit history, or until you request to have the statement removed. Remember that accurate, but negative, information can’t be removed simply because you don’t like it. As I previously mentioned, late payments and accounts in collection eventually fall off your credit report after seven years.

And by the way, each credit bureau is required to notify the other bureaus about disputes, so you only need to submit it once. So, the earlier you get started cleaning up your reports, the faster your credit scores can improve.

Yes, making disputes may seem like a hassle, but you’ll be glad when it’s done and you get a great mortgage. Remember that credit bureaus don’t make lending or credit decisions, they simply maintain a database of information that’s reported to them.

See Also: 7 Credit Score Traps You Should Avoid

3. Deal with delinquent accounts.

If you have delinquencies—such as late payments, accounts in collection, and judgments—they will hurt your ability to get a mortgage. Your payment history is the most important factor in the calculation of your credit scores. So, if you have poor credit, it’s probably because you haven’t paid accounts as agreed.

Your payment history is the most important factor in the calculation of your credit scores.

Before putting in a mortgage application, consider paying off any past due balances or negotiating a settlement with creditors. Unfortunately, making a lump sum payment or a monthly payment agreement for a delinquent account doesn’t remove it from your report. As I mentioned, all accurate but negative information stays for up to seven years.

However, getting caught up on late payments helps clean up your report. And black marks in your credit files can be overshadowed by newer, positive information as you make payments on time. In other words, the older a delinquency gets, the less it’s factored into your credit scores and the better you look to a mortgage lender.

One word of caution is that if you have old past due accounts, making a payment can restart the statute of limitations, which comes with legal risks. So, if you have a large amount of delinquent debt, always consult with an attorney before communicating with creditors. Check out The Statute of Limitations and 4 Options for Old Debt for more information.


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.