How to Get Your Credit Ready for a Mortgage

Knowledge Center

How to Get Your Credit Ready for a Mortgage

How to Get Your Credit Ready for a Mortgage

If you’re preparing to buy a home in the near future, it’s important to make sure your credit is up to par. You want to know where your credit stands so you can improve your chances at being approved for a mortgage loan and getting the best rates and terms. Before you start shopping for your new home, take these steps to get your credit mortgage-ready.

Check Your Credit Report and Credit Scores

The first step you should take, if you haven’t done so already, is to check your credit and find out where you currently stand. Start focusing on your credit at least six months to a year before you start applying for a mortgage loan, so any improvements made to your credit have time to transform into savings. You are entitled to one free credit report every year from Annual Credit Report, or you can request your credit reports directly from each of the three credit bureaus (Experian, Equifax, and TransUnion). Review your reports for any errors, such as incorrect payment information or accounts that should not be listed. If you notice any errors, contact the credit bureaus to have the errors removed or corrected. It’s almost like starting over with a clean slate! While you’re at it, you should also check your FICO® Score. When you receive your score, you will also receive an explanation of why you received that score and what you can do to improve it. Following those suggestions will help you determine what to focus on so you can improve your score before applying for a mortgage loan.

Pay Down Your Debts

One of the biggest factors in determining your credit score is your credit utilization ratio. It accounts for 30% of your credit score calculation, and measures the amount of credit you use compared to what is available to you. Remember, it isn’t a bad thing to use the credit you have as long as you are being mindful of how you are using it, since high credit utilization can result in a lower credit score. You can calculate your credit utilization ratio by adding up all of your current credit card balances and then dividing that number by your total credit limit. Experts recommend keeping your credit utilization below 30%, so do what you can to get your credit utilization below that threshold before applying for a mortgage loan. The best way to decrease your credit utilization is to pay down your debts as much as possible so you can reduce the amount you owe, and limit how much you use your cards to ensure you don’t exceed 30% utilization.

Keep Paying On Time

Another significant factor in calculating your credit score is your payment history. This accounts for 35% of your credit score, the largest percentage, so it has the greatest influence on your credit score. Late payments, especially any new late payments, will greatly decrease your score. So before you apply for a new loan, it’s important to make sure you keep making your payments on time for any existing loans. Setting up automatic payments will help ensure you never accidentally miss a payment. You can also set up payment reminders via text or email alert to help remind you when you have an upcoming payment due.

Don’t Apply for New Credit

Applying for new loans and credit can temporarily lower your credit score, so you should avoid opening any new accounts in the months before applying for a mortgage loan. If you’re planning on opening a new credit card or applying for an auto loan, wait until after you’ve been approved for your mortgage loan. This way, your credit will be in its best shape when you apply for the mortgage, and you can better your chances at receiving the best rate and terms. Additionally, if you’re planning on making a large purchase and charging it to a credit card, hold off until after your mortgage loan is approved. Remember, now is the time to focus on decreasing your credit utilization as much as possible to improve your chances with mortgage lenders.

If you’re ready to apply for a mortgage loan, let our team help you get the loan you need. Visit our Mortgage Loan Center to learn more about the mortgage process, use our Home Buying Calculators to get a picture of what your home loan will look like, and check out our Buying a Home video series on YouTube for more information about home buying. Apply for a mortgage loan online or set up an appointment to speak with one of our Mortgage Loan Officers.