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Improving your credit before getting a mortgage

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Your credit score is one of the primary factors mortgage lenders consider when you apply for a loan. If your score needs work, take these steps to improve it before you apply.

Credit score needed for mortgage

The typical credit score for mortgage borrowers is 776, according to the first quarter 2022 Federal Reserve Bank of New York report on household debt.

However, the minimums to qualify for different types of mortgages are much lower:

  • Conventional loan – 620
  • Jumbo loan – Generally 700 or higher
  • FHA loan – 580 (or 500 with more money down)
  • VA loan – Generally 620 or 640
  • USDA loan – Generally 640

Still, it’s best to have the highest score possible before you apply for a mortgage. The higher your score, the better chance you’ll have of being approved for a mortgage and the lower interest rate you’ll get. The best rates go to borrowers with scores of 740 or higher.

Tips to improve credit before getting a mortgage

1. Check your credit reports and scores

Get a copy of your credit report from each major credit bureau (Equifax, Experian and TransUnion) through AnnualCreditReport.com. Aside from reviewing your scores, make sure there are no mistakes, such as incorrect contact information. If there is an error, contact the bureau to dispute it as soon as possible.

2. Pay all your bills on time

Keep all accounts in good standing. Missing a payment can lower your credit score, and late payments can stay on your report for up to seven years. If you’re currently late on a payment but still within the grace period, contact the creditor right away to see if you can get things back on track. If you do have a late payment on your record, strive to make payments on-time moving forward.

3. Reduce your credit card balances

Your credit utilization ratio is the amount you owe against your total available credit, and it accounts for 30 percent of your score. The lower the ratio, the better. As a rule of thumb, if your utilization is over 30 percent, work to pay down those balances so you’re under that threshold.

4. Avoid opening new accounts

Applying for new credit will affect your score. If you can, avoid opening credit cards or taking out more loans before you apply for a mortgage, as well as when you apply and during loan processing. By the same token, don’t close any old accounts, either — this can raise your utilization ratio and have an adverse effect on your score.

5. Get help from a responsible credit user

If you’re a younger first-time buyer, you might not have a very long credit history. One way to build credit: Become an authorized user on a parent’s or relative’s credit card. The primary cardholder (your parent or relative) will continue to make the payments, but you’ll benefit from the positive payment history.

Next steps

It might take some time to get your credit in shape, especially if you have a less-than-stellar payment history or serious incidents like bankruptcy or foreclosure to contend with.

For the typical first-time homebuyer, though, the key is good habits. Continue making payments on time, keep your credit utilization low and avoid taking on new debt. With good or excellent credit, you can focus on preparing for the next steps in the mortgage process:

Written by
Bankrate
This article was generated using automation technology and thoroughly edited and fact-checked by an editor on our editorial staff.
Edited by
Mortgage editor