How to get your credit ready for a mortgage

07/15/2021
How to get your credit ready for a mortgage

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An unimpressive credit score could ruin your chances of getting a mortgage

You can prepare your credit for a future mortgage in several ways.

Buying a home is a major step in life. After all, it’s many people’s great American dream. However, lenders might refrain from granting your application for a mortgage if they feel that you aren’t creditworthy. Even if they still grant your application, they might only do so with high rates of interest.

This post discusses how you can get your credit ready for a mortgage.

Read on to find out how.

1. Ascertain your credit health

To get your credit ready for a mortgage, first you need to figure out your credit status. Without this information, you won’t know your financial standing and you’ll be in the dark about how lenders will see you.

To do this, you need to get your credit reports and credit scores from the three major credit bureaus, which you can get for free once a year each. Understand that these reports might vary slightly from one another.

Determining your current financial standing will give you intel on whether your credit health is good. If it’s not, you’ll know what you need to do to improve it.

2. Challenge any inaccuracies on your credit report

Credit reporting errors ding your credit health. Scrutinizing your credit reports exposes any mistakes they might contain. These mistakes could be the fault of your lenders, the credit reporting agency, or even identity theft.

If you spot a mistake, be sure to dispute it. It’s possible you could restore your credit health within moments

3. Pump the brakes on applications for new credit

If you have your sights set on applying for a mortgage, it will help to slow down on applying for new lines of credit. The reason is that any application for new credit typically causes a hard credit check, which reduces your credit score a bit.

Multiple credit applications within a short period will cause multiple hard credit checks. Lenders might consider this a red flag as it suggests that you may be in financial distress and could therefore pose a high risk. 

4. Pay your bills early

When prepping your credit for a mortgage application, it helps to make your payments on time. Since payment history matters a great deal when lenders evaluate your creditworthiness, work on building a credit history that features an impressive record of timely payments.

Late payments damage your credit score. If there’s a late payment within the 12 months leading up to your mortgage application, lenders might see it as an indicator of bad financial habits. While it might not prevent you from getting the mortgage, it could result in higher interest rates. 

Automatic payments, calendar alarms, and reminders can all help you avoid accidental late payments.

5. Pay off your debts and reduce your debt-to-income ratio

When sprucing up your credit score for a mortgage, you would do well to clear your debts as much as possible. Maintaining a low credit utilization ratio is also good for your credit health.

Since lenders are taking a risk when they offer you money, they’ll want to know if you’re a high-risk customer who will default on payments. One way to figure that out is by paying attention to your debt-to-income ratio—a representation of how much debt you have compared to your income.

A high DTI speaks poorly of your credit health and might get in the way of you getting approved for a mortgage.

6. Become an authorized user

Another way to get your credit ready for a mortgage is to take advantage of the good financial standing of someone close to you. If you’re lucky enough to have someone you trust and who trusts you, request that they make you an authorized user on their account.

 

Basically, becoming an authorized user means that you can spend from the person’s account, and the account holder is obligated to make the payments (which, of course, you should provide). As long as the activities are reported to the bureaus, the person’s good financial habits will count for you both.

If they grant your request, be sure to develop good financial habits as well. Over time, your credit will reap the reward and bump up your chances of getting approved for a mortgage.  

7. Keep older accounts running

When lenders assess your credit health, they pay attention to the length of your credit history, which accounts for 15% of your credit score, according to FICO. If you have older accounts, even if you don’t use them much anymore, don’t make the mistake of closing them. Keep using them for small, regular purchases. They’ll have your credit looking good when your lenders check it out. 

8. Delete outdated financial associations

Financial associations (like joint accounts with former housemates for the paying of domestic bills or a joint account with a former spouse, etc.) can weigh on your credit. For your credit to bloom, remove any defunct financial associations that could be marring your credit health.

9. Assess your joint applicants

If you’re making a joint application for a mortgage, bear in mind that lenders will also consider your joint applicant’s credit. Be sure their credit is in good shape as well, or they might hurt your chances of getting the mortgage.

10. Request a credit limit increase

Having a high credit limit will work in your favor if you’re gearing up for a mortgage, so if you have credit cards with lower limits and have a good track record of creditworthiness on those accounts, you can request a credit limit increase. Chances are good that your issuer will grant the request. 

A high credit limit improves your credit utilization ratio, enabling you to spend more from your credit card while maintaining a low ratio. A good credit utilization ratio is a major influence on your credit score.


If you’re nursing intentions of applying for a mortgage, be sure to follow these tips to prime your credit for the application. If you need any help with your credit, reach out to us.


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