How to Improve Your Credit Score to Get a Mortgage

Why Your Credit Score is Important

If you’re in the market for a mortgage, it’s essential to look at your credit score first. You may wonder why your credit score is so important.

Here is why...

It’s the first thing lenders look at when you apply for a mortgage. Your credit needs to be a certain number in order to qualify. The higher your credit score the better your rate is going to be for your loan. A general rule of thumb is above 580 for FHA and Conventional Loans. However, for down payment assistance programs, you will need above a 660 credit score to qualify for all programs.

How to Increase Your Credit Score

Your credit score changes monthly. With these simple changes, you can increase your credit score and your chances of approval!

1. Bring your Accounts Current

If you have any late payments reported on your credit report, get them current fast. Late payments can hurt your credit score the most since your payment history makes up the largest portion of your credit score.

2. Pay your Debts Down

The next largest part of your credit score is your credit utilization. This refers to the amount of your credit lines you have outstanding. According to the Consumer Financial Protection Bureau, experts recommend keeping your credit utilization below 30% of your available credit. Make your payments on time and don't go over your credit limit.?

Work on paying your debts down and watch your score increase.

3. Don’t Close Old Credit Card Accounts

It sounds odd, but keep your old credit card accounts open. They help your credit age. Your credit score improves when you have older credit accounts. New accounts don’t have a history and can make you a higher risk.

4. Don’t Apply for New Credit

If you’re in the market for a mortgage, avoid applying for any new credit or any large loans that would hurt your score (i.e. a new car loan). New accounts bring your credit score down and increase your credit utilization.

Wait until after you close on your mortgage to open up a new credit card to furnish your home or to buy that new car. The new credit will only decrease your score and your chances of mortgage approval.

You don’t need a perfect credit score to get a mortgage, but the higher your score is, the better your interest rate on your loan will be. Working on your credit score before you apply increases your chances of approval and expands, increases your buying power, and allows you to have options for loan programs.

It may take a few months to see a change in your credit score, though. Don’t expect changes overnight. If you want to apply for a mortgage but are unsure of what your credit is, don't worry! We are here to help and guide you through the process. Feel free to contact us today with any questions you may have!

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