How Can I Get My Credit Ready to Apply for a Home Loan?

Quick Answer

When preparing to apply for a mortgage, it’s important to review your credit reports and scores and take steps to get them in great shape.

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Dear Experian,

With rent prices increasing, I've decided it may be time to buy a home. How do I get my credit in good shape to apply for a mortgage?

- RFM

Dear RFM,

If you're planning to apply for credit in the near future, it's a good idea to order copies of your credit reports from each of the three credit reporting agencies—Experian, TransUnion and Equifax—at least three to six months in advance.

Reviewing your credit reports carefully is the best way to ensure that you know where you stand and that there will be no surprises during the application process. It also gives you time to make any changes that can help you improve your credit scores so that you can qualify for the best rates and terms available to you.

What's the Easiest Way to Get My Credit Report?

You can obtain free copies of your credit reports from all three credit reporting agencies quickly and easily by going online to AnnualCreditReport.com. Through December 31, 2022, Experian, TransUnion and Equifax will offer consumers free weekly reports. You can also order your free credit report directly from Experian.

Ordering your own credit report and credit score will not hurt your credit scores or have any direct effect on lending decisions. You can order them as many times as you like. Checking your credit reports often is recommended to help you stay on top of any changes to your credit history. It can also help alert you to potential fraud much sooner.

What Can I Do to Improve My Credit Score?

If you are trying to improve your score before applying for a mortgage, consider ordering your free credit score from Experian. When you get your score, it will include a list of the top risk factors that may be impacting your scores negatively, such as recent late payments or high credit card balances. By addressing the risk factors listed, you can begin improving your creditworthiness right away.

Some other steps you can take to increase your scores:

  • Bring past due accounts current. Payment history is the most important factor in your credit scores. If you have any accounts that are currently delinquent, bringing them current and ensuring that all payments are made on time going forward can help scores. Late payments remain on the credit report for seven years, but their impact diminishes over time.
  • Pay off any outstanding debts. If you have outstanding balances on your report, such as collection accounts, paying them off can help your scores right away, and most mortgage lenders will require that collection accounts be paid off before they will approve you for a home loan. Many of the newer credit scoring models no longer include collection accounts in the score calculations once they are paid off.
  • Reduce balances on credit card accounts. Your utilization rate, or balance-to-limit ratio, is the second most important factor in your scores after your payment history. Experts recommend keeping your utilization rate below 30%, but below 10% is best for scores. Paying down or paying off your credit card balances before going to apply for your loan can put you in a better position to qualify for the best rates and terms.
  • Avoid applying for credit you don't really need. If you know you will be applying for a major loan soon, you may want to avoid applying for other new credit in the interim. Although hard inquiries generally have only a minimal and temporary impact on credit scores, too many applications for credit in a short period of time may be viewed by lenders as a sign of risk.

Thanks for asking.

Jennifer White, Consumer Education Specialist

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