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How to Improve Your Credit to Get a Better Mortgage Deal

How to Improve Your Credit to Get a Better Mortgage Deal

In today’s rising interest rate climate, many potential homebuyers are looking for ways to save on a home purchase. One of the best proactive things you can do is to improve your credit score as much as possible before applying for a mortgage loan. In general, the higher your credit, the better the interest rate you can score. There are at least five steps you can take to boost your score so that it is mortgage application ready.

  1. Check for Credit Errors

    You can request a copy of your credit report and score for free from each of the three major credit reporting bureaus, Experian, Equifax, and TransUnion by visiting AnnualCreditReport.com. Your credit score will be slightly different on each report and will be a number between 300 and 850. You will need a score at least in the upper 500s to be considered for a mortgage, but the best rates are reserved for those with scores in the mid-to-upper 700s. If your score is not where you’d like it to be, start with examining your credit reports, looking for any errors like identity misspellings, accounts listed on your report for others with the same or similar name to yours, closed accounts that show as open, payments recorded as late that weren’t, etc. If you can submit clarifying documents, you can request that the credit bureaus correct these mistakes and hopefully see your credit score rise quickly.
  2. Make All Payments On Time

    One of the biggest factors in your score is your history of timely bill payments. If you have been late in the past, the best thing you can do for your credit is to make all future payments on time. You might consider setting up automatic payments to avoid forgetting to pay and leaving a cushion of funds in your checking account to prevent returned checks.
  3. Limit New Credit Applications

    Your credit score will take a hit every time you open a new financing account. Over time your score will go back up, but if you open many new credit accounts within a short period, your score will drop more dramatically. So, make every effort to avoid new lines of credit for at least six to twelve months before you apply for a mortgage.
  4. Curb Big Ticket Spending

    One of the factors determining your credit score is your debt-to-credit-limit ratio. Making large purchases like buying new cars, boats, electronics, appliances, or charging expensive vacations to credit cards can run up your debt load and decrease your available credit, pulling down your score. 
  5. Pay Down Your Debts

    Similarly, you can improve your score by decreasing your current debt load. If you are carrying high balances or still have large student or auto debt, significantly paying down those totals can have a positive effect on your credit.

Doing the work ahead of time to raise your credit score can pay off in big savings when it comes to applying for a mortgage loan. Don’t forget to continue to monitor your credit report through the entire process to make sure things are headed in the right direction.

If you want to discuss how to improve your credit score, give us a call. If you're in the market to buy a new home, a second home or an investment property, let us know. We are here to help.