Your credit score affects every aspect of your mortgage: whether you qualify, what loan programs you can access, and—most importantly—what interest rate you'll pay. The difference between a 680 score and a 760 score can be half a percentage point or more in rate, translating to tens of thousands of dollars over a 30-year loan. Improving your credit before applying for a mortgage is one of the highest-return financial moves you can make.
Understanding Your Credit Score
Most mortgage lenders use FICO scores, which range from 300 to 850. The score is calculated from five factors: payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), and new credit (10%). Your strategy should focus on the factors you can influence quickly.
Start by getting your credit reports from all three bureaus (Equifax, Experian, TransUnion) at AnnualCreditReport.com—it's free. Mortgage lenders pull all three and use the middle score (or lower middle if there are two borrowers). Review each report for errors: accounts that aren't yours, incorrect balances, or negative items that should have aged off.
Dispute any errors you find. Incorrect late payments, wrong credit limits, and accounts belonging to someone else can all drag down your score. Disputes can be filed online with each bureau. If successful, you could see significant score improvement within 30-45 days.
Quick Wins for Score Improvement
Pay down credit card balances. Credit utilization—how much of your available credit you're using—has the second-biggest impact on your score. Maxed-out cards hurt badly; keeping utilization below 30% helps, and below 10% is ideal. If you have $10,000 in available credit and $3,000 in balances, you're at 30%. Pay it down to $1,000 and your score could jump significantly.
Don't close old accounts. Length of credit history matters, and closing your oldest account shortens your average account age. Closing accounts also reduces your available credit, increasing utilization. Keep old cards open, even if you don't use them often.
Become an authorized user on a family member's well-managed credit card. Their payment history and available credit can help your score. The account should have a long history, low utilization, and perfect payment record. This strategy works best when you have limited credit history.
Don't open new accounts in the months before applying for a mortgage. Each credit inquiry causes a small, temporary dip. More importantly, new accounts lower your average account age. Wait until after closing to open that store credit card.
Longer-Term Strategies
Payment history is the biggest factor. Every on-time payment helps; every late payment hurts—and late payments stay on your report for seven years. Set up autopay to ensure you never miss a due date, even if it's just the minimum payment.
If you have collections or charge-offs, strategize carefully. Paying off old collections can actually cause a temporary score drop because it updates the account's "date of last activity." Sometimes it's better to wait for old negative items to age off (seven years from the original delinquency) than to pay them. A credit counselor or mortgage professional can advise on your specific situation.
Diversifying your credit mix can help modestly. If you only have credit cards, an installment loan (like a car loan) shows you can manage different types of credit. But don't take on debt just to improve your mix—the impact is smaller than other factors.
Credit improvement takes time. Start six months to a year before you plan to buy if your score needs significant work. Even a few months of focused effort—paying down balances and ensuring on-time payments—can yield meaningful improvement.