Improving your credit is one of the most important steps you can take before applying for a mortgage. A great place to begin is by reviewing your credit reports from all three major bureaus—Equifax, Experian, and TransUnion. You can access these for free through AnnualCreditReport.com. Carefully check for any mistakes, such as incorrect late payments or closed accounts that should be open. If you spot an error, file a dispute with the reporting bureau right away to correct it.
Keeping your accounts in good standing by paying bills on time is essential. Missed or late payments can drag down your credit score and remain on your report for up to seven years. If you’re currently within a grace period on a payment, take immediate steps to make it current. Even if you’ve made past mistakes, consistent on-time payments moving forward will improve your credit over time.
Another factor to watch is your credit utilization ratio—how much of your available credit you’re using. This accounts for 30 percent of your credit score. Ideally, you should keep utilization below 30 percent. If your balances are high, focus on paying them down. Alternatively, if you’re a responsible spender and usually pay off your balance, you can ask your credit card providers to raise your credit limits, which will lower your utilization ratio without requiring you to reduce spending.
Avoid opening new credit accounts before applying for a mortgage. Each application triggers a credit inquiry, which can temporarily reduce your score. Likewise, don’t close any existing credit accounts, as this can increase your utilization ratio and negatively affect your score. Stability is key during the mortgage process.
For younger or first-time buyers with limited credit history, becoming an authorized user on a parent’s or trusted relative’s credit card can be a helpful strategy. As long as the primary cardholder pays on time and maintains a low balance, this history will reflect positively on your own credit profile.
If you’re overwhelmed by debt or unsure where to begin, consider speaking with a certified credit counselor. A professional from a nonprofit credit counseling agency can help you develop a budget, negotiate lower interest rates, and create a realistic plan to reduce your debt over time.
Understanding how your credit score is calculated can also help guide your improvement strategy. According to Equifax, your FICO score is composed of several elements: 35 percent is based on your payment history, 30 percent on your total debt, 15 percent on the length of your credit history, and 10 percent each on new accounts and credit mix. Scores in the high 600s and 700s are typically considered good, with the national average reaching 715 in 2024. Debt that builds long-term value, like a mortgage, is viewed more favorably than revolving credit card debt.
Having a higher credit score not only increases your chances of mortgage approval, but it can also save you thousands of dollars. A lower interest rate translates to lower monthly payments and less paid in interest over the life of the loan. For example, on a $300,000 home with a 3 percent down payment, a rate difference of just 0.125 percent can mean a monthly savings of over $20—and a long-term savings of more than $8,000 over a 30-year loan.
Once your credit is in order, the next steps involve preparing for the mortgage process. First, gather financial documents including pay stubs, tax returns, and statements from bank and investment accounts. Then, shop around for mortgage preapprovals from at least three lenders to compare rates and terms. After finding a home and having your offer accepted, you’ll officially apply for a mortgage and begin the underwriting process, during which the lender verifies your financial details. If everything checks out, you’ll proceed to closing, where you’ll sign final documents and officially become a homeowner.
Taking the time to boost your credit and get financially organized will not only increase your chances of buying the home you want—it will also ensure you do so on solid, long-term financial footing.
