Your credit score plays a critical role in the home-buying process. It determines your mortgage eligibility, the interest rate you’ll receive, and the overall cost of your loan. A higher credit score means lower interest rates and better loan terms, while a lower score could result in higher monthly payments and even loan rejection.
If your credit score isn’t where it needs to be, don’t worry. There are effective steps you can take to improve it before applying for a mortgage. Whether you have a few months or a year before buying a home, here’s how to improve your credit score and strengthen your financial future.
Why Improving Your Credit Score Matters for Home Buying
Lenders use your credit score to assess how responsible you are with debt. It helps them determine if you are a reliable borrower who will make mortgage payments on time. A high credit score signals lower risk for lenders, making you eligible for better loan terms. A low score, on the other hand, can lead to higher interest rates or outright loan denial.
| Credit Score | Loan Approval Chances | Potential Interest Rate |
|---|---|---|
| 750+ (Excellent) | Almost guaranteed approval | Lowest available rates |
| 700-749 (Good) | Strong approval chances | Competitive rates |
| 650-699 (Fair) | May qualify, but at higher interest rates | Moderate rates |
| 600-649 (Poor) | Limited options, higher costs | Higher rates |
| Below 600 (Very Poor) | Unlikely to get a mortgage | Very high or denied |
Even a small increase in your credit score can help you qualify for lower interest rates, reducing your monthly mortgage payment and saving you thousands of dollars over time.
1. Check Your Credit Report for Errors
Errors in your credit report can unfairly lower your score and hurt your mortgage approval chances. Many reports contain inaccuracies, such as accounts that don’t belong to you, incorrect late payments, or outdated negative information. Checking and fixing these errors is one of the quickest ways to improve your credit score.
🔎 Where to Get Your Credit Report:
You’re entitled to one free credit report per year from each of the three major credit bureaus:
- Experian
- Equifax
- TransUnion
👉 Request your free credit report at AnnualCreditReport
✅ What to Look for in Your Credit Report:
- Incorrect late payments that you actually paid on time
- Accounts you don’t recognize, which may indicate fraud
- Outdated negative information, such as old collections or charge-offs
- Incorrect credit limits or balances, which affect your credit utilization
How to Fix Credit Report Errors
1️⃣ File a dispute with the credit bureau that reported the mistake.
2️⃣ Provide supporting documents to prove the error.
3️⃣ Follow up within 30 days to check if the correction has been made.
💡 Fixing errors can boost your credit score in as little as 30-60 days!
2. Pay Your Bills on Time – Every Time
Payment history accounts for 35% of your credit score, making it the most important factor. A missed payment can stay on your credit report for seven years, severely impacting your ability to get a mortgage. Consistently paying bills on time demonstrates financial responsibility and helps build a strong credit profile.
✔ Set up automatic payments for credit cards and loans to prevent missed payments.
✔ Use calendar alerts or reminders to keep track of due dates.
✔ If you miss a payment, pay it as soon as possible—the longer it remains unpaid, the more damage it does.
💡 Pro Tip: If you have a good payment history, call your creditor and request a goodwill adjustment to remove a one-time late payment from your report.
3. Reduce Your Credit Utilization Ratio
Your credit utilization ratio is the percentage of available credit you’re using. It accounts for 30% of your credit score, meaning keeping your balances low is essential for maintaining a high score. A high utilization ratio can make lenders believe you are over-reliant on credit, which increases perceived risk.
✅ Keep your credit utilization below 30% of your total credit limit.
✅ For the best score, aim for below 10%.
✅ Pay down credit card balances before the statement closing date to report lower balances.
💡 Example: If your credit limit is $10,000, keep your balance below $3,000 (30%), but ideally under $1,000 (10%) for a stronger credit score.
🔹 Another way to improve credit utilization: Request a credit limit increase from your bank. If your limit increases but your balance remains the same, your utilization ratio decreases, improving your score.
4. Avoid Opening New Credit Accounts
Every time you apply for a new credit card or loan, it triggers a hard inquiry on your credit report, which can lower your score temporarily. Too many hard inquiries in a short period can signal financial instability to lenders.
🚫 Avoid applying for new credit cards or loans at least six months before applying for a mortgage.
🚫 Don’t open new accounts just to increase available credit—this can lower your average credit age.
💡 Lenders prefer a stable credit history without sudden changes before approving a mortgage.
5. Keep Old Credit Accounts Open
The length of your credit history accounts for 15% of your credit score. Older credit accounts help boost your score by showing long-term responsible borrowing.
✔ Keep old credit cards open, even if you don’t use them often.
✔ Use older credit cards occasionally for small purchases to keep them active.
🚫 Closing an old account reduces your total available credit, which can increase your credit utilization ratio and lower your score.
6. Pay Down Debt Strategically
Reducing your overall debt can improve both your credit score and your debt-to-income ratio (DTI), which lenders evaluate when reviewing mortgage applications. High debt levels can limit your borrowing power and result in higher interest rates.
🔹 Best Debt Payoff Strategies:
✔ Snowball Method – Pay off smallest debts first to build momentum.
✔ Avalanche Method – Pay off highest-interest debts first to save more money.
💡 Lower debt levels make you a more attractive borrower to mortgage lenders.
7. Monitor Your Credit Score Regularly
Tracking your credit score allows you to see improvements, detect fraud early, and track progress before applying for a mortgage. Many banks and financial institutions offer free credit monitoring tools to help you stay informed.
📌 Best Free Credit Monitoring Tools:
- Credit Karma (creditkarma)
- Experian Credit Monitoring (experian)
- Mint Credit Score (mint)
💡 Set up alerts so you’re notified of any major changes in your credit score.
Final Thoughts on How to Improve Your Credit Score
Improving your credit score before buying a home requires patience, discipline, and smart financial habits. The steps you take today will determine your mortgage eligibility and interest rates in the future.
✔ Check and correct credit report errors.
✔ Pay all bills on time.
✔ Keep your credit utilization low.
✔ Avoid unnecessary new credit applications.
✔ Keep old accounts open to build credit history.
By following these strategies, you can increase your credit score, qualify for better mortgage rates, and save thousands of dollars over the life of your loan.
📌 Next Steps: Want more home-buying advice? Check out our guide on How to Budget for a Home Purchase.
🚀 Start improving your credit today so you’ll be financially ready when it’s time to buy your home!
