How Long After Credit Repair Can I Buy a Home?

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People often wonder how long they need to wait to buy a home after they repair their credit. The answer is more complicated than a set amount of time. A number of factors concerning your finances go into the mortgage approval process, so you will want to take a look at the whole picture.

What Is Credit Repair?

Credit repair is what you need to do when you find inaccurate information on your credit report. Many people are surprised when they find incorrect information, and it is a lot more common than you might think. The best way to check is to get your annual free credit report and check it to make sure that all of your information is accurate.

Creditors are required to report your information accurately, and if they don’t, you have the right to dispute their report. Examples of items that might be inaccurate include the following:

  • Duplicate accounts
  • Inaccurate accounts
  • Accounts that don’t belong to you
  • Incorrect inquiries
  • Inaccurate address or name

If you find anything that should not be on your credit report, you can choose to dispute the information or hire a credit repair company to dispute it for you. If you plan to buy a house, it is important to take care of this as soon as possible so that it doesn’t interfere with your ability to get a mortgage.

What Is a Credit Repair Company?

A credit repair company can help you dispute inaccurate items on your credit report. They are familiar with the laws and regulations, such as the Fair Credit Reporting Act, which spell out your rights. If you hire one of these companies, they will obtain copies of your credit report from all three credit bureaus, Experian, Equifax, and Transunion. Creditors do not always report to all three agencies, so it is important to review all three reports.

A credit repair company will review your credit report for any inaccurate information, and they will meet with you to have you check it over as well. They will let you know that you do have the right to file a dispute on your own, but they have years of experience and can file the dispute for you. They also know what information and documents you need to successfully dispute items, and they have experience dealing with the credit bureaus.

It is important to understand that a credit repair company cannot help you with valid debts and information on your credit report. If they offer to try to remove anything valid, you should not work with them. They should never suggest that you start a new credit file with an EIN or that you lie to try to have credit items removed from your report.

How Long Does It Take to Repair Credit?

If you use a credit repair company or dispute credit items on your own, it is not a quick process. Once you file the dispute, the credit bureau has to either verify the debt, update it, or remove it. It can take one or two months for this to happen. You will want to take care of this long before you are ready to buy a house. That way, it won’t hold you up.

If you check your credit report for inaccurate information regularly, you will not be in a rush when you need to pass a credit check for a mortgage. In the meanwhile, anything you dispute will show up as in dispute on your credit report.

How Long Do Valid Negative Items Stay on Your Credit Report?

Most valid negative items will remain on our credit report for seven years, including the following:

  • Foreclosures
  • Repossessions
  • Late payments
  • Short sales
  • Charge offs
  • Tax liens (from the date of the payment)
  • Chapter 13 bankruptcy

In addition, collection accounts will remain there for seven years and 180 days, while bankruptcies other than Chapter 13 will stay on your credit report for 10 years from the date of filing. That being said, the impact of these negative items will be lower after two years.

What Is in a Credit Report?

Your credit report has a lot of information about your finances. The first section contains your personal information, including your name, other names you may have used, your address, your phone number, and your employment. You should make sure that all of this information is correct because inaccurate items often appear when they include debts that belong to a family member with a similar name.

The next section has court-related financial information, including any liens, wage garnishments, judgments, and bankruptcies. These items hurt you a lot initially, but over time, they don’t hurt you as badly.

There will also be a section devoted to your creditors. This will include your mortgages, auto loans, student loans, and credit cards. It will show the original amount of your loan or your credit limit, how much you owe, your payments, and your payment history. Late payments and missed payments will show up here, as well as charged off accounts.

There will be another section that includes your credit inquiries for the last two years. You should avoid applying for credit if you plan to buy a house, except in certain situations which will be addressed in the next section.

All of his information is used to determine your credit score. They break it down into five categories:

  • Your payment history (35% of score)
  • Your credit usage (30% of score)
  • The length of your credit history (15% of your score)
  • The type of credit you have (10% of your score)
  • Credit inquiries (10% of your score)

It is important to understand that your payment history and your credit usage make up 65% of your credit score. You need to make all of your payments on time and keep your credit utilization under 30% of your available credit.

How to Improve Credit Before Applying for a Mortgage

If you have valid items that are negative on your credit report that are impacting your credit score, you need to improve your credit before you apply for a mortgage. You should have an on-time payment history for all of your accounts for at least six months before you apply for a mortgage, and if you have a year, it is even better.

In addition, you need to make sure that your credit usage is under 30% of your overall available credit. In fact, if you can get it lower, it will be even better. Start off by paying down your balances as much as you can. If this isn’t enough, you might consider taking out another credit card.

If you are unable to qualify for a credit card, you can consider obtaining a secured card. You will make a deposit at the institution, and this amount will be your credit limit. By increasing your credit limit, you will reduce your credit usage. You should not use this new card besides to make one or two small charges that you can afford to pay each month. Otherwise, you will find yourself with the same credit usage rate, but you will owe more money.

You should never consider credit to be money in your pocket. It is important to remember that you are borrowing it, often at a high interest rate. If at all possible, you should only use what you can afford to pay off each month.

You can also add Experian Boost to your credit report with Experian. The other two credit bureaus do not have this feature, but Experian will allow you to link your payment for utility bills and cell phone service to boost your score if you pay those bills on time. If you do have a late payment, it will not hurt your score; this is a great low-risk way to add to your credit score.

In addition, you should add a note to your credit reports. If you have been through a life-changing event such as a divorce or an illness, you can explain the negative marks on your credit report. This will help creditors or mortgage brokers understand why you might have a few negative items on your report.

How Long Do You Have to Wait After Catching up Payments?

If you have bad marks on your credit report, you need to take care of them as soon as possible. The first thing to do is to catch up on your bills so that they are on time, and do everything in your power not to be late again. After six months, your score will improve, and after a year, it will be even better.

When you bring your credit usage below 30% of your available credit, you will see your score go up right away. There are several different methods of accomplishing this, including getting another credit card, getting a secured credit card, or getting a personal loan. Whichever you choose, remember not to use the new credit to run up a balance. Your goal is to get your balances as low as possible.

You should try not to apply for new credit if you know that you plan to apply for a mortgage. If you need to add one credit card to increase your available credit, that is okay, but plan ahead. If you have a number of credit inquiries, mortgage companies may feel as though you are living beyond your means.

If you know that you plan to apply for a mortgage in the near future, you should take action as soon as possible to increase your score so that you do not have to wait once you find the perfect house.

What Do You Need to Qualify for a Mortgage?

A mortgage is likely going to be the largest loan you ever need in your life, but it is a secured loan. That means the loan is backed by the real estate you buy. This provides some protection to the lender because they can foreclose on your home if you default on your mortgage payments.

However, that doesn’t mean you can qualify with terrible credit. Mortgage lenders do not want to foreclose on homes; they just enjoy the security of knowing they are protected if you do default. The risk to the lender is low because they will not lend you more money than the home is worth. In other words, they have a built-in means of recovering their money if you default.

If you have good credit and otherwise qualify for a mortgage, you can also get good interest rates for this loan. The interest rate is usually lower than it is for other types of loans, and they will want to see the following:

  • Current and anticipated income
  • Current debt and expenses
  • Credit history

If you make a lot of money, you will have less trouble qualifying for a mortgage. Lenders want to know you are responsible with your finances, but they also want to know you make enough money to make your mortgage payments.

What Do Mortgage Lenders Consider to Be a Red Flag?

There are several items that will make it difficult for you to get a mortgage, and if you do get one, you will be paying a high interest rate. Look at the following:

  • Foreclosure: If you have a foreclosure on your credit report, you may need to wait until it is gone to apply for a mortgage. It will fall off your report in seven years.
  • Short Sale: If you end up with negative equity in a home, the bank may agree to let you sell it for less than you owe. This will show up on your credit report for seven years.
  • Bankruptcy: If you have declared bankruptcy, this can make it harder to qualify for a mortgage.
  • Repossession: If you have had a car repossessed, it might send up a red flag when you apply or a mortgage.
  • Tax liens: This is money you owe for not paying your taxes on time.
  • Judgments: This is money you have been ordered to pay as a result of a court case.
  • Charge offs: If you stop paying a credit card company, they may charge off your account, where they mark it as uncollectible and sell the debt to a collections company.
  • Collection accounts: This is debt that has been sold or given to a debt collection company.
  • Late payments: Mortgage lenders do not like to see late payments.

If any of these items are on your credit report, you may need to wait and clean your credit report up before you apply for a mortgage. Alternatively, you may need to pay a much higher interest rate, and you can refinance after you reduce your debt and get your finances under control.

How to Deal with Collection Accounts

Unless a collection account is an invalid debt, you will need to handle them by paying them. It is unlikely that a mortgage lender will give you a mortgage with any unpaid collections debt on your credit report.

The first thing to do is to check over the collections debt. It is important to understand that charged off credit cards often have the debt sold to a collection agent. These debt collectors, in turn, will sell the debt again if they are unable to collect.

The law says that a debt can only appear once on your credit report. That means that the first collection account needs to be removed if they sell your debt to another company. Be sure to check for this type of duplicate account on your credit report, as it is very common.

If you have an existing collection account, you should not make payments. The debt is likely accumulating interest, and you can restart reporting by making payments. Instead, you should figure out how much of the debt you are able to pay, and call the collection company to negotiate a deal.

You can ask them to let you settle the debt for a certain amount of money, and then ask them to remove the account from your credit report when you pay them. Make sure that you get any agreement of this type in writing.

Having an unpaid collection account makes mortgage lenders very nervous. Even though your house is collateral, they are not in this business to take homes and recover their debt. They want to lend to people who will make their payments on time, so it is important that you do what you can to show them that you will.

What Credit Score Do I Need?

Credit scores are divided into the following categories:

  • 300 to 579: Poor
  • 580 to 669: Fair
  • 670 to 739: Good
  • 740 to 799: Very good
  • 800 to 850: Exceptional

If you make enough money to afford the mortgage, as based on your debt to income ratio, many of the larger national banks will give a mortgage to people with a credit score of 620 or more. They will look at more than the number; if you went through a serious event in our life, such as an illness or a divorce, and your bad credit is all from that time period, a positive payment history since that time will play a role in your getting approved.

You will want to make sure that you can show that for the past six months to a year, you have made your payments on time and you are living within your means. This is more important than the exact number of your credit score.

However, keep in mind that the higher your score, the better terms you will get for your mortgage.

Can Items Removed with Credit Repair Return to Your Credit Report?

If you have had items removed from your credit report for being inaccurate, technically, they should not reappear. However, this is the reason that it is so important to regularly check your credit report. If they do appear on another credit bureau’s report, you will need to dispute it again.

Other items that have fallen off your report may reappear, especially if you never paid the debt. Even when old debt falls off of your report, you are still responsible for the debt. It should not be on your credit report after it has fallen off, but you should check to make sure.

How Long After Credit Repair Can I Apply for a Mortgage?

After you repair your credit, the inaccurate items will be removed from your credit report. You can apply for a mortgage when this occurs. It is safe to say that it should be completed within 90 days. Assuming there is nothing else wrong with your credit report, you should be fine to apply.

If you have other valid negative items, you will need to clear them up. Even if you can get approved, a mortgage is a long-term commitment, and you will pay a higher interest rate for a lower score. Make sure that you bring all of your accounts current, reduce your credit utilization to less than 30% of your available credit, and negotiate with any collection accounts to pay a settlement for removal from your credit report.

If you need to take time to clean up your credit report in this way, you may want to give it 12 months to get the best mortgage rates. Most lenders will approve people with a minimum between 580 and 640, but with a low score, you are looking at a higher interest rate and fewer mortgage options.

Final Words

Staying on top of your credit is important so that you will be able to get a mortgage, an auto loan, or other credit when you need it. Make sure to check your credit report regularly so that you can dispute any inaccurate items on your report. We can help if you want a company to help you with credit repair. Using a professional company can simplify the process for you to make sure that your credit report is accurate.

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