Steps to Improve Your Credit Scores Before Applying for a Mortgage

“There are 10 actions that one can take to improve credit scores before applying for a mortgage.” - Marcel Deitrich

How to Improve Your Credit Score Before Applying for a Mortgage

Your credit score plays a crucial role in determining the mortgage rate and loan options you qualify for. A higher credit score can save you thousands of dollars over the life of your loan by securing a lower interest rate. If you're planning to apply for a mortgage soon, now is the perfect time to focus on boosting your credit score. Here are some strategies to help you get started.

Marcel and Jan Deitrich have decades of experience helping people navigate the mortgage process.

1. Check Your Credit Report for Errors

Start by obtaining a copy of your credit report from the three major credit bureaus: Equifax, Experian, and TransUnion. You can get a free report from each bureau once a year at AnnualCreditReport.com. Review your reports for any errors, such as incorrect account information, late payments you didn't make, or accounts that don't belong to you. If you find any discrepancies, dispute them with the credit bureau to get them corrected.

2. Pay Down Credit Card Balances

One of the fastest ways to improve your credit score is to reduce your credit card balances. Your credit utilization ratio, which is the percentage of your available credit that you're using, makes up a significant part of your credit score. Aim to keep your utilization below 30% on each card. If possible, pay off high-interest cards first or consider consolidating your debt to lower your overall balances.

3. Make All Payments on Time

Payment history is the most critical factor in your credit score, accounting for about 35% of your score. Late or missed payments can significantly impact your score, so it's essential to make all your payments on time. Set up automatic payments or reminders to help you stay on track. Even if you can only make the minimum payment, it's better than missing it entirely.

4. Avoid Opening New Credit Accounts

While it may be tempting to open new credit cards or take out loans to build your credit, doing so can actually hurt your score in the short term. Each time you apply for credit, a hard inquiry is made on your report, which can lower your score slightly. Additionally, opening new accounts can reduce the average age of your credit history, which also affects your score. It's best to avoid opening new accounts in the months leading up to your mortgage application.

5. Keep Old Credit Accounts Open

Length of credit history is another factor that influences your score, so it's beneficial to keep older accounts open, even if you're not actively using them. Closing an old account can reduce the average age of your credit history, which might lower your score. Instead, consider using these accounts occasionally for small purchases and paying them off in full to keep them active.

6. Diversify Your Credit Mix

Lenders like to see that you can manage a variety of credit types responsibly. If you only have credit cards, consider adding a different type of credit, such as a personal loan or auto loan, as long as it makes sense for your financial situation. However, only do this if you have a significant amount of time before applying for a mortgage, as the short-term impact of opening a new account can lower your score.

7. Negotiate with Creditors

If you have late payments or other negative marks on your credit report, contact your creditors to see if you can negotiate a removal. Some creditors may agree to a "pay for delete" arrangement, where they remove the negative item in exchange for payment in full. While not guaranteed, it's worth asking, especially if you're in good standing with the creditor otherwise.

8. Consider a Rapid Rescore

If you're close to applying for a mortgage and need a quick credit boost, talk to your lender about a rapid rescore. This process allows you to update your credit report with new information, like debt payoffs, faster than the standard timeline. While a rapid rescore can improve your score in a matter of days, it usually requires documentation to prove the changes, such as receipts for paid-off balances.

9. Avoid Major Financial Changes Before Applying

Any significant financial changes, like buying a car or taking out a personal loan, can affect your credit score and debt-to-income ratio. Lenders prefer stability, so try to avoid any large purchases or new debts in the months leading up to your mortgage application.

10. Work with a Mortgage Professional

A mortgage professional can help you understand how your credit score affects your mortgage options and guide you through the steps to improve it. They can offer personalized strategies to help you reach your credit goals, ensuring you get the best possible mortgage terms when you're ready to buy a home.

Final Thoughts

Improving your credit score before applying for a mortgage can be a game-changer in securing the best rates and terms. By taking the time to review your credit report, paying down debt, making timely payments, and avoiding new credit inquiries, you can put yourself in a strong position for mortgage approval. For personalized advice and a smoother mortgage process, reach out to a mortgage professional who can help guide you every step of the way.

At Texas Loan Haus, we're here to support you in making the most of your home-buying journey. Contact us today to learn more about how we can help you secure the best mortgage options based on your unique financial situation.

Marcel Deitrich

Texas Loan Haus
972.672.3246
[email protected]
NMLS# 231135