Credit Counts: How to Prepare Your Credit for a Mortgage Application

Share on email
Share on twitter
Share on linkedin
Share on facebook

Getting your credit in good shape for your mortgage application means doing what’s necessary to improve your score, fixing any errors – and then leaving it alone. Too many changes to your credit in the year before applying for a mortgage can raise a red flag with lenders. It’s a good idea to review your credit report and check your FICO® Score 6-12 months before applying for a big loan, so you have time to take action if need be.

Curious what kind of credit score you need for a home loan? Sindeo has broken down the guide to credit, click here to learn how to improve your credit score so you can get a better mortgage.

5 Simple Ways to Improve Your Credit Score

1. Pay your bills on time and avoid skipping payments.
2. Keep balances low on your credit cards (generally, no more than 30% of your credit limit) and other debts.
3. Pay off overdue accounts as quickly as possible.
4. Work with your creditors directly to develop a plan to pay off any debt that’s bringing down your score – you can sometimes get monthly payments lowered or have your debt restructured to make it more realistic to pay off.
5. Watch out for identity theft, inaccuracies in personal information, misapplied payments, or incorrect account details that can impact your credit. If there are mistakes on your report, it’s up to you to dispute the errors.

We know, it’s simple – but it’s not always easy. Getting your credit score up can be a project all on its own, and it takes time. But your credit score won’t repair itself, so just remember the old adage about how to eat an elephant: one bite at a time.

4 Pre-mortgage Credit Score Don’ts

The general rule of thumb is that you want to tread lightly before applying for what’s likely to be the largest financial transaction of your life. Here are a few tips to make sure that lenders won’t raise an eyebrow when they review your credit:

1. Don’t close or cancel any credit cards. It sounds counterintuitive, but the reason is that you’ll be changing your debt-to-credit ratio. Your FICO® Score can take a hit if the amount you owe stays the same, but your available credit decreases.
2. Don’t apply for new credit. This includes new credit cards, auto loans and boat loans.
3. Don’t allow numerous credit inquiries within a few months’ time, as this can worry lenders that you’re desperately seeking credit because of a bad financial situation. (That being said, shopping around for a good mortgage rate is ok if done within a 14-day period because FICO® counts all hard pulls within this period as a single inquiry.)
4. Don’t finance or lease a new car or other property. Lenders frown upon large purchases being made just before you’re asking them for money.

Want the cheat sheet to this blog? Get the PDF here.

This blog post is an excerpt from “Credit Counts: How Better Credit Can Help You Score a Better Mortgage.” Click here to learn how credit influences your mortgage rate.

You might be interested in these related articles...

Let’s get started...