Your credit score plays a key role in your ability to finance a home and in the interest rate paid once you secure a loan. Since most negative information stays on your credit report for seven years, it can be hard to overcome mistakes made long ago, before the idea of home shopping had even crossed your mind!
Just how long will it take? There’s no easy answer to this. Some improvements show up within a month or two, but others take many months. Some negative effects may not drop off completely until seven years have passed, though their impact will diminish with time.
Home buyer tips will typically tell you to start improving your credit score by paying your bills on-time and paying down or paying off some of your credit cards. This is sound advice, since payment history and credit utilization (ratio of used-to-available credit) are the two largest components of your credit score.
How fast it will help depends on how quickly the company you’re paying reports the information to the credit agencies. Some report daily, and others report only monthly. That means it could take several weeks for the change to appear.
But keep in mind that the one debt you’re bringing current or the one credit care you are paying off is not acting on your credit score in a vacuum. Other things you’re doing at the same time could bring your score down.
For example, if you pay off an older credit card, closing the same account could be bad because the length of your credit history also factors into your score. In fact, either applying for a new card or closing an old account could impact your score enough that it takes three months to recover.
The amount of change your action causes is also impacted by your initial credit score. New positive actions create the biggest changes in lower scores, so those who are likely to need the most help can typically make large gains faster.
Home buyer tips also tell prospective mortgage borrowers to check their credit reports and correct any errors. Most errors have to be reported to the credit bureaus in writing, and resolution may require some back-and-forth among you, the credit bureau, and the company reporting the error. You can expect to wait at least two to three months for a positive impact on your score.
If an error is near the seven-year drop-off period for negative occurrences, you’re probably better off leaving it there. Otherwise, it may move up in your timeline and appear to be a current problem.
If you’re in the process of getting a mortgage loan and you have proof of an error on your report, such as a bank statement that demonstrates a reported late payment was made on time, you may be able to correct it faster. Some mortgage lenders have access to a rapid rescoring service that will yield results in 48 to 72 hours.
Perhaps this is the best of all the home buyer tips: If home financing is your goal, talk to a mortgage lender early to discuss your particular scenario and the steps you might need to take to boost your credit score. You might even find there are home loan programs that can meet you and your credit score right where you are!