Improving your credit score is an important step to increasing your chances of getting approved for a mortgage.
Here are some strategies to help you improve your credit score:
Review Your Credit Report:
Start by obtaining a copy of your credit report from major credit bureaus like Equifax, Experian, and TransUnion. Carefully review the report for any errors, discrepancies, or fraudulent accounts. If you find any inaccuracies, dispute them with the credit bureaus to have them corrected.
Pay Your Bills on Time:
Payment history is a significant factor in determining your credit score. Make sure to pay all your bills, including credit cards, loans, and utilities, on time. Late payments can have a negative impact on your credit score, so set up automatic payments or reminders to ensure timely payments.
Reduce Credit Card Balances:
High credit card balances can negatively affect your credit utilization ratio, which is the amount of credit you're using compared to your total credit limit. Aim to keep your credit utilization below 30% of your available credit. Consider paying down your balances and avoiding maxing out your credit cards.
Don't Close Unused Credit Accounts:
Closing old or unused credit accounts may seem like a good idea, but it can actually harm your credit score. Keeping these accounts open shows a longer credit history and lower credit utilization, which can positively impact your score. However, if the accounts have high annual fees or tempt you to overspend, weigh the pros and cons before making a decision.
Avoid Opening New Credit Accounts:
While it's essential to have a healthy credit mix, opening new credit accounts can temporarily lower your credit score. Each time you apply for new credit, a hard inquiry is made, which can negatively impact your score. Only open new credit accounts when necessary, and space out applications to minimize the impact.
Diversify Your Credit:
Having a mix of different types of credit, such as credit cards, loans, and a mortgage, can positively impact your credit score. However, only take on credit that you can responsibly manage and afford.
Be patient and persistent. Improving your credit score takes time and persistence. Consistently practicing good credit habits will gradually improve your score over time. Avoid quick-fix solutions or credit repair scams that promise instant results, as they can be ineffective or even harmful.
Seek Professional Advice:
If you're unsure about the best strategies to improve your credit score, consider working with a reputable credit counselor or financial advisor. They can provide personalized guidance and advice tailored to your specific situation.
Mortgage credit score requirements
The minimum credit score to qualify for different types of mortgages ranges a good deal.
Type of Loan Minimum Credit Score
FHA 580 (or 500 with additional money down)
VA 620 (VA doesn’t require a minimum credit score, but lenders do)
Still, it’s best to have the highest score possible before you apply for a mortgage: In fact, the median credit score for new mortgage borrowers is 766, according to the fourth quarter 2022 Federal Reserve Bank of New York report on household debt. The greater your score, the better chance you’ll have of being approved for a mortgage and the lower the interest rate you’ll get. The best rates go to borrowers with scores of 740 or higher.
Remember, improving your credit score is a long-term process that requires discipline and responsible financial management. By implementing these strategies and maintaining good credit habits, you can increase your creditworthiness and improve your chances of getting approved for a mortgage.