How to Repair Your Credit So You Can Get a Mortgage

A happy young man using his credit card to buy online.

Building or repairing your credit score means learning to use credit cards responsibly. An improved credit score means better rates on mortgages.

Trying to build or improve your credit score so you can qualify for a mortgage?

If so, count the credit cards in your wallet: too many or too few can negatively affect your score. But there is a sweet spot.

The ideal number of credit cards, according to Philip Tirone of 720CreditScore.com, is three to five.

More than five and the credit bureaus will worry that you could get yourself into a financial bind if you use them all at once. It doesn’t matter to the bureaus whether you actually use them. It’s the potential that raises a red flag.

Less than three cards, on the other hand, and the bureaus aren’t presented with enough information about your spending behavior. Hence, they score you lower.

At the same time, Tirone warns, do not try to wipe your hands clean of credit altogether, especially if you’ve ever become overextended. People sometimes think that if all those credit cards have the potential to get them into trouble and destroy their score, they can solve the problem by simply cutting the cards into little pieces and becoming cash-only citizens.

“Unfortunately, this gut reaction is the worst thing you can do for your credit score,” says the one-time mortgage broker who created 720CreditScore to help his clients increase their credit scores and improve their financial situation. Originally a book and workbook, the product expanded to become an infomercial, a teleseminar and now an online wealth-enhancement resource.

The reason: The cards may be gone and you may not be using them. Nevertheless, they continue to suppress your score.

Better, the credit expert advises, you should open three new revolving credit cards immediately. That’s because the credit-scoring bureaus place more emphasis on recent behavior than on what occurred in the past.

“This means that if you have suffered from some sort of financial meltdown that caused your credit score to drop, your credit score will be bad in the months after the financial problems,” says Tirone. “But it will start to increase as the negative marks begin fading into the past.”

Infographic with tips on repairing creditLook at this way: The exam you failed as a high school sophomore fades into the ever-after as you start making better grades in your junior and senior years. By the time you graduate, that long ago black mark will have faded away into the abyss with little or no impact on your final grades.

The same goes for credit, Tirone explains. “If you take the right steps, all of those ‘F’ marks will not matter in 12 to 24 months. After all, you will have a new and improved history of earning ‘A’ after ‘A.’

“This is why you need to have and use credit if you want to have a good credit score. And establishing new lines credit is an important part of rebuilding your credit score,” he says.

The credit expert recommends carrying three new revolving credit cards. “One of the fastest ways to rebuild your credit score to a 720 is to have at least three active, major revolving credit cards, meaning Visa, MasterCard, American Express or Discover,” he says.

Unfortunately, it can be hard to qualify for new cards if your credit score is too low. And beyond that, according to a Federal Reserve Board study, nearly half of all credit cards will hurt, not improve, your score.

Worse, about half of all cards people carry do not report to all three credit bureaus, which is terribly important. Either that, or they do not report the proper credit limit, which causes your score to drop.

If you need to apply for more than one card, do so all at once. Part of your credit score is based on the age of your accounts, says Tirone. If you open one now and then wait six months to open another, you will lower the average age of your accounts.

Realize that very time you apply for credit, your score might dip a little. But after about six months of timely payments, your score will show significant improvements. And six months later, you might have a great credit score, which will allow you to get a better, if not the best, rate on a mortgage, car loan and your cards. And that could save you hundreds of dollars, month in and month out.

Finally, never apply for credit jointly with your spouse. Rather, each of you should apply separately so that you both build individual credit identities.

Tirone says this is important in case you ever find yourself in a financial bind and unable to pay your bills.

“If you have joint credit cards, both of your credit scores will take a hit, but if you build separate credit profiles, only one spouse’s credit score will suffer,” he says. “The other can be preserved and then leveraged for loans.”
Lew Sichelman is a nationally syndicated housing and real estate columnist. He has covered the real estate beat for more than 40 years.

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