Buying a home is an exciting milestone, but before you start shopping for the perfect house, you’ll want to ensure your credit score is in the best shape possible. Your credit score plays a huge role in determining your mortgage eligibility, interest rate, and loan terms. The higher your score, the better your chances of securing a lower interest rate—which could save you thousands of dollars over the life of your loan.
If you plan to apply for a mortgage, here’s how to improve your credit score and increase your chances of getting the best possible loan.
Why Your Credit Score Matters for a Mortgage
Lenders use your credit score to assess how responsible you are with debt. The higher your score, the less risky you appear to lenders. Here’s what different credit score ranges typically mean for mortgage approval:
- 760+ – Excellent (Qualifies for the best rates)
- 700-759 – Good (Eligible for competitive rates)
- 650-699 – Fair (May qualify, but with higher rates)
- 600-649 – Poor (Difficult to qualify, high interest rates)
- Below 600 – Very poor (Unlikely to qualify without improvement)
The difference between a good and excellent score could mean saving tens of thousands of dollars over your mortgage term!
6 Steps to Boost Your Credit Score Before Applying for a Mortgage
1. Check Your Credit Report for Errors
Before applying for a mortgage, review your credit report to make sure no errors or fraudulent accounts are impacting your score. Fixing mistakes could quickly improve your score and make a big difference in your mortgage application.
How to do it:
- Request a free credit report from AnnualCreditReport.com.
- Look for incorrect late payments, account balances, or fraudulent activity.
- Dispute any errors with the credit bureau to have them removed.
2. Pay Down Credit Card Balances
Your credit utilization ratio (how much of your available credit you’re using) makes up 30% of your credit score. Lenders prefer borrowers who keep their credit utilization below 30%. For example, if your credit limit is $10,000, try to keep your balance below $3,000.
How to do it:
- Pay down high balances on credit cards and lines of credit.
- Make multiple payments per month to keep balances low.
- Avoid making large purchases right before applying for a mortgage.
3. Make All Payments on Time
Your payment history accounts for 35% of your credit score, making it the most important factor in your credit health. Even one missed payment can cause a drop in your score.
How to do it:
- Set up automatic payments or reminders for bills.
- Always pay at least the minimum payment on time.
- If you’ve missed payments in the past, start making consistent, on-time payments now—over time, this will help improve your score.
4. Avoid Opening New Credit Accounts
Applying for a new credit card or loan results in a hard inquiry on your credit report, which can temporarily lower your score.
How to do it:
- Avoid opening new credit cards or personal loans before applying for a mortgage.
- Keep existing accounts open, even if you don’t use them (closing old accounts can reduce your credit age, which impacts your score).
5. Increase Your Credit Limit (But Don’t Use It!)
If your credit utilization is high, you can ask for a credit limit increase to improve your credit ratio instantly—just make sure you don’t rack up more debt.
How to do it:
- Call your credit card company and ask for a limit increase (without a hard inquiry).
- Keep spending habits the same—increasing your limit only helps if you don’t increase your balance.
6. Pay Off Collection Accounts & Old Debts
If you have unpaid collections on your credit report, they can seriously hurt your score and affect your mortgage approval.
How to do it:
- Contact the collection agency to negotiate a settlement or payment plan.
- Ask if they’ll remove the collection from your report once it’s paid.
- If possible, pay off any charged-off accounts that are still affecting your score.
How Long Does It Take to Improve Your Credit Score?
Improving your credit score isn’t an overnight process, but even a few months of smart financial moves can make a difference.
- Short-Term Fixes (1-3 months): Paying down balances, fixing errors, and making on-time payments can boost your score quickly.
- Long-Term Fixes (6-12 months): Consistently improving credit habits can help build a strong score before applying for a mortgage.
Final Thoughts: Is Your Credit Score Mortgage-Ready?
Before applying for a home loan, take the time to strengthen your credit score—it can mean the difference between an affordable mortgage and one with high interest rates.
At The United Federal Credit Union, we’re here to help you navigate the mortgage process and find the best home loan options for your financial situation.
Ready to start your homeownership journey? Contact us today to learn more about our mortgage programs and get pre-qualified!