Your credit score is one of the most critical factors lenders consider when approving your mortgage application and determining your interest rate. A higher score can save you thousands over the life of your loan, while a lower score might mean higher rates or even rejection. Improving your credit score takes time and effort, but with the right steps, you can position yourself for success before applying for a mortgage.
In this comprehensive guide, we’ll cover why your credit score matters, how it’s calculated, and actionable steps to improve it—starting today.
Why Timing Matters
Start working on your credit at least 6-12 months before applying for a mortgage. Many changes take time to reflect on your credit report.
Why Your Credit Score Matters for a Mortgage
Lenders use your credit score to assess your risk as a borrower. A score above 740 typically qualifies you for the best rates, while scores below 620 might limit you to higher-cost loans like FHA options—or prevent approval altogether. Even a small increase (e.g., from 680 to 720) can lower your rate and save you significant money.
For example, on a $300,000, 30-year fixed-rate mortgage, improving your score from 680 (4.5% interest) to 740 (4.0% interest) reduces your monthly payment by about $90 and saves over $32,000 in interest over the loan term.
How Credit Scores Are Calculated
Before you can improve your score, it helps to understand the five factors that determine it (based on the FICO model, widely used by mortgage lenders):
- Payment History (35%): Do you pay bills on time?
- Credit Utilization (30%): How much of your available credit are you using?
- Length of Credit History (15%): How long have your accounts been open?
- New Credit (10%): Have you recently opened multiple new accounts?
- Credit Mix (10%): Do you have a variety of credit types (e.g., credit cards, loans)?
Focus your efforts on the top two factors—payment history and utilization—for the biggest impact.
Steps to Improve Your Credit Score
Here’s a detailed checklist to boost your score before your mortgage application:
1. Check Your Credit Reports for Errors
Get Your Free Reports
Request reports from all three bureaus (Equifax, Experian, TransUnion) at AnnualCreditReport.com.
Look for Mistakes
Check for incorrect late payments, accounts that aren’t yours, or inaccurate balances.
Dispute Errors
File disputes online with each bureau. Provide documentation (e.g., payment records) to support your case.
RED FLAG: Unresolved Errors
Uncorrected mistakes can drag your score down unnecessarily. Act quickly—disputes can take 30-45 days to resolve.
2. Pay Bills on Time
Set Up Reminders
Use calendar alerts or autopay to ensure you never miss a due date.
Catch Up on Late Payments
If you’re behind, bring accounts current. Late payments hurt less as they age.
Request Goodwill Adjustments
Ask creditors to remove one-time late payments from your report as a courtesy if you have a good history.
3. Reduce Credit Utilization
Pay Down Balances
Aim to use less than 30% of your credit limits (e.g., $300 on a $1,000 limit). Below 10% is even better.
Spread Out Usage
Use multiple cards lightly rather than maxing out one.
Request Higher Limits
Ask issuers to increase your credit limits (without a hard inquiry) to lower your utilization ratio.
RED FLAG: High Utilization
Using over 70% of your credit limits can tank your score fast. Prioritize paying these down.
4. Avoid New Credit Inquiries
Limit Applications
Avoid opening new credit cards or loans 6-12 months before applying for a mortgage.
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Multiple mortgage inquiries within a 14-45 day window (depending on scoring model) count as one.
5. Keep Old Accounts Open
Preserve Credit Age
Don’t close old credit cards, even if unused—they boost your credit history length.
Use Them Occasionally
Make small charges and pay them off to keep accounts active.
Beware of Quick Fixes
Avoid “credit repair” scams promising instant results. Legitimate improvement takes time and consistent habits.
Monitoring Your Progress
Track your score monthly using free tools like Credit Karma or your bank’s credit monitoring service. Watch for updates after paying down debt or resolving errors—most changes appear within 30-60 days.
What If Your Score Is Still Low?
If time’s short or your score won’t budge enough, consider these options:
- FHA Loans: Require as little as 3.5% down with a 580 score (or 10% with 500-579).
- Co-Signer: A relative with strong credit can boost your application.
- Wait and Save: Delay buying to improve your score and down payment.
Ready to See Your Mortgage Options?
Use our mortgage calculator to estimate payments based on your improved credit score and current rates.
Try Our CalculatorFinal Thoughts
Improving your credit score before applying for a mortgage is an investment in your financial future. By starting early, correcting errors, and building good habits, you can secure better loan terms and lower costs. Pair this effort with a solid homebuying plan, and you’ll be well on your way to owning your dream home.