When you’re preparing to apply for a mortgage, one of the most critical factors lenders will evaluate is your credit score. A higher credit score can not only increase your chances of approval but also secure you a lower interest rate, potentially saving you thousands of dollars over the life of your loan. Here’s a step-by-step guide to improving your credit score before you apply for a mortgage.

1. Check Your Credit Reports

Start by obtaining a free copy of your credit report from the three major credit bureaus: Equifax, Experian, and TransUnion. Review each report carefully to ensure that all the information is accurate. Mistakes, such as incorrect account balances or late payments that were actually paid on time, can negatively impact your score. If you find any errors, dispute them immediately.

2. Pay Down Existing Debt

Your credit utilization ratio, which is the amount of credit you’re using compared to your total credit limit, plays a significant role in your credit score. Aim to keep your credit utilization below 30%, but ideally, you should aim for 10% or lower. Paying down existing credit card balances is one of the quickest ways to improve your credit score.

3. Make All Payments on Time

Payment history accounts for 35% of your FICO score, making it the most significant factor in your credit score calculation. Set up automatic payments or reminders to ensure that you never miss a payment. If you have any overdue accounts, bring them current as soon as possible.

4. Avoid Opening New Credit Accounts

Each time you apply for new credit, it triggers a hard inquiry on your credit report, which can temporarily lower your score. Additionally, opening new accounts can reduce the average age of your credit history, another factor that affects your score. Avoid opening new credit cards or taking out loans in the months leading up to your mortgage application.

5. Increase Your Credit Limits

If you have a good relationship with your credit card issuer and have demonstrated responsible credit use, consider requesting a credit limit increase. This can lower your credit utilization ratio without requiring you to pay down your balances. However, be cautious not to increase your spending as a result.

6. Become an Authorized User

If a close family member or friend has a strong credit history and low credit utilization, consider asking them to add you as an authorized user on one of their credit cards. As an authorized user, the account’s positive history will be added to your credit report, which can help boost your score.

7. Diversify Your Credit Mix

Lenders like to see that you can responsibly manage a variety of credit types, such as credit cards, installment loans, and mortgages. If your credit history is limited to just one type of credit, consider diversifying by taking out a small personal loan or securing a credit-builder loan from a credit union.

8. Keep Old Accounts Open

The length of your credit history affects 15% of your credit score. Closing old accounts can shorten your credit history and increase your credit utilization ratio. If you have old credit cards that you no longer use, keep them open, but consider making small purchases on them occasionally to keep them active.

9. Use a Credit Monitoring Service

Signing up for a credit monitoring service can help you track your progress as you work to improve your score. These services can alert you to any significant changes in your credit report, such as a new account opening or a missed payment, allowing you to address potential issues promptly.

10. Be Patient and Persistent

Improving your credit score is not an overnight process; it requires consistent effort over time. Start working on your credit at least six months to a year before you plan to apply for a mortgage. This will give your efforts time to reflect on your credit report and ensure that your score is in the best possible shape when it’s time to apply.

Conclusion

A strong credit score is a key component of a successful mortgage application. By taking proactive steps to improve your credit, you’ll be better positioned to secure a favorable loan with a competitive interest rate. Remember, the earlier you start, the better your chances of achieving your financial goals.