3 Ways to Build Your Credit Score for a Mortgage

3 Ways to Build Your Credit Score for a Mortgage

PJ Byron
Published on March 30, 2022
Credit Score for a mortgage

3 Ways to Build Your Credit Score for a Mortgage

We all know that your credit score for a mortgage is a key part of buying a home. Yet, many buyers are confused about the role their credit score plays in their journey to homeownership. Even if your credit score isn't perfect or if you don't currently have established credit, you can get a home loan that meets your needs.

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Knowing your credit score is the first step in getting a mortgage that works for you. Before we get started, take a moment to get your credit score for free by clicking here. By law, you can request a copy of your credit report once per year, so be sure to keep tabs on this important piece of your finances.

Let's tackle why your credit score for a mortgage is important

Lenders want to know that you are likely to pay back the money they're lending you. Your credit score compiles information like your credit account payment history, current balance owed, and the length of time the credit account has been open, as well as any accounts in collections. Your credit scores are used as a determining factor in the type of loan you may qualify for and the likelihood of mortgage approval. Here are some important factors that comprise your credit score:

  • Paying your credit cards, student loans, auto loans, and other loans and/or mortgages on time.
  • The amount of debt owed compared to the maximum amount available for you to borrow from each credit account. For example, if you have a Discover Credit Account with a $5,000 limit and your open balance is $3,500.
  • The number of credit accounts you have and the length of time since they were opened.
  • Any credit accounts that might be in collections.
  • Credit inquiries for applying for new credit accounts, such as those that would result from applying for a new auto loan or financing home furnishings, and the length of time since the inquiry originated.

Lenders will review your credit report, which contains all this information. But what if you don't have an established credit history to evaluate?

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Luckily, there are steps you can take to build credit. A typical credit score should reflect:

  • One account that's been open and reported to the credit bureaus for at least six months
  • No deceased parties should be listed on your credit report

Recent credit activity is a great way to start building credit to get a mortgage eventually.

If this is you, keep reading for more credit-building tips. You'll need to know these things once you establish credit and apply for a mortgage preapproval.

Verify your mortgage eligibility (Jun 17th, 2024)

1. Don't be tardy

Perhaps nothing has more of a negative impact on your credit score for a mortgage than late and missed payments.

Late payments for bills that report to the credit bureaus will knock down your score. When building a good credit score for a mortgage, remember that what you do today will show up on your report in a few months.

Here are some ideas to keep your payments timely:

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  • Ask yourself if you're charging for something you need or something you want. "Frivolous" or impulsive purchases raise your credit card bills, making statements harder to pay off. Moreover, you'll carry a larger balance that lenders will deem risky.
  • Set up automatic payments. If possible, set up payments for more than the minimum amount.

Getting a handle on your payment schedules now will raise your score down the road. You can also call your credit providers and ask for your payment date to be moved to a time of the month that's potentially easier for you to pay.

2. Don't open any new lines of credit

This one may seem contradictory, but hear me out. You may be thinking that it's better to have more credit for a mortgage, especially if you're paying all your bills on time.

Well, not really.

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Applying for a car loan or a new credit card requires that your credit report be pulled, which may result in a decrease in your overall credit scores. The more lines of credit you have open, the less favorable your overall credit score will be. This warning is even more important to listen to before you get a mortgage.

It's generally unwise to open any new lines of credit months before applying for a mortgage preapproval. You want your credit report to be as predictable as possible when applying for a home loan.

Because of this, you also want to consider the following:

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  • Don't do anything requiring your credit report to be pulled
  • Lower your credit limit to increase your balance to debt ratio
  • Don't charge any large purchases before closing on your home
  • Avoid closing out your current cards to a zero balance

Ask me about other score-building strategies to improve your credit score for a mortgage.

3. Manage your credit limits

All right, so you're paying your bills on time and not taking out any new lines of credit. Great!

Now, how can you leverage the credit cards you already have to improve your score?

Verify your mortgage eligibility (Jun 17th, 2024)

Believe it or not, your credit limits are part of building a healthy score. What good is keeping a prudent amount of credit open if most of your cards are close to being maxed out?

Here are general rules of thumb to follow:

  • Don't be afraid to use your cards, but make sure to keep your balance at low levels.
  • Pay more than the minimum payment each month.

Using your cards and keeping the limit to a very manageable level demonstrates self-control and will undoubtedly improve your overall score.

Ready to improve your credit score for a mortgage?

I'm here to help you build a credit score for a mortgage that will make you a successful homeowner. Join the many clients who have trusted me to lead them home. Contact me today to get started!

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PJ Byron President
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(401) 583-4150

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