To secure a favorable mortgage, prioritize improving your credit score. Lenders assess risk based on your score, impacting interest rates. Check for report errors, reduce credit card utilization below 30%, and ensure timely payments. Avoid new credit lines and keep old accounts open. These strategies will effectively boost your credit score, paving the way for better mortgage terms.
Why Your Credit Score Matters for a Mortgage
Think of your credit score as your financial report card. Lenders check it to gauge risk before they hand over hundreds of thousands of dollars. A higher score gets you better interest rates, saving you a ton over the life of your loan.
Most banks and lenders want to see a score of 620 or higher for a conventional mortgage. FHA loans may allow scores as low as 580, but anything below 700 can still mean higher interest rates.
How to Improve Your Credit Score Before Applying for a Mortgage
Not happy with your number? Here’s what to focus on:
1. Check Your Credit Reports for Errors
Lenders pull credit scores from three main bureaus: Experian, Equifax, and TransUnion. If any of these reports have errors, your score could be lower than it should be.
Pull your free reports from AnnualCreditReport.com and check for:
- Incorrect personal info (wrong name, old addresses)
- Accounts that don’t belong to you
- Incorrect balances or duplicate accounts
- Late payments that were actually on time
Spotted an error? Dispute it directly with the credit bureau. Fixing mistakes could bump your score up fast.
2. Pay Down Credit Card Balances
Your credit utilization—how much of your credit limit you’re using—affects 30% of your score. The lower this number, the better.
If you’re maxing out cards, lenders see that as high risk. Bring your balances down under 30% of your total limit. If possible, aim for 10% or less.
Example: If you have a $10,000 credit limit, try to keep your balance below $1,000.
3. Set Up Automatic Payments
Your payment history makes up 35% of your credit score. Even one missed payment can drag your score down.
Set up auto-pay for at least the minimum on all your bills. If you’ve missed payments in the past, start paying on time now—lenders want to see a solid recent history.
4. Don’t Open New Credit Accounts Right Before Applying
Every time you apply for a new credit card or loan, your score takes a hit. Lenders don’t like too many hard inquiries in a short period.
If you’re planning to buy a home in the next year, hold off on opening new accounts unless absolutely necessary.
5. Keep Old Credit Accounts Open
Closing old credit cards might seem smart, but it can actually lower your score. Why? It reduces your available credit and shortens your credit history—two things lenders care about.
If you have old, unused credit cards, leave them open unless they have high fees.
FAQs
How long does it take to improve your credit score before applying for a mortgage?
It depends on your starting point. Small improvements can take 30-60 days. Bigger changes, like paying off debt or fixing errors, might take six months or more.
What’s the fastest way to boost my credit score before getting a mortgage?
Pay down credit cards below 30% utilization, dispute errors, and make all future payments on time. These steps can improve your score quickly.
Will checking my own credit score hurt my chances?
No. Pulling your own credit is a soft inquiry, which doesn’t affect your score. Only lender-initiated hard inquiries can lower it.
Should I pay off all my debt before applying for a mortgage?
Not necessarily. Focus on paying down high-interest credit cards to lower your debt-to-income ratio. But leaving some older accounts open helps your credit history.
Want to learn more about home buying and finances? Check out the latest tips on our blog.