Your credit score can save you a lot of money … or it can cost you a lot of money. Yet, some people don’t even know their credit score, or how to make it better. That’s bad news when you’re hoping to get the best deal on a mortgage (and looking at 30 years of payments on the most expensive thing you’ll probably ever buy).

If you’re looking to improve your credit history and raise your credit score before buying your first home, you need a step-by-step plan that can boost your credit and end up saving you thousands of dollars down the road. Buying a home with bad credit can be stressful so you may want to boost your credit scores before beginning that process.

How to Raise Your Credit Scores Before Applying for a Home Loan

Obtaining a mortgage to buy your dream home is a significant financial milestone. Your credit score is a crucial factor in the home loan approval process, impacting your eligibility and the terms you’ll receive. To secure the best possible mortgage rates and loan options, it’s essential to take proactive steps to raise your credit scores before applying for a home loan. In this article, we’ll provide valuable insights and strategies to help you improve your creditworthiness.

Understanding Your Credit Score

At a minimum, it should be understood that when you apply for a loan, financial institutions will look at your credit score from three major credit bureaus to get a better picture of your financial health.

Experian, Equifax, and Transunion will generate reports a mortgage lender will use to evaluate the likelihood that you’ll make good on your borrowing. The Fair Issac Corporation’s FICO score (a number based on all those credit reports) has become a standard used by lenders for such evaluations. All told, it allows them to glean a rough idea of your worthiness as a borrower.

What Affects Your Credit Score?

Think back to the first time you filled out an application for a credit card or student loans. Since that time, your finances have, in a sense, been monitored and inspected routinely by an untold number of companies. Mainly, they’re using a small set of questions to determine your score:

  1. Are you paying your bills on time? (Your payment history makes up a large part of your score)
  2. How long have you had credit/how many years since opening your first account?
  3. Of all available credit, how much are you using?
  4. What types of accounts do you have open?
  5. How much new credit have you applied for recently?

These five things will help lenders decide the amount, terms, and rate of your mortgage loan, or any other loan you might apply for.

Fixing a Poor Credit Score

Even if you’re one of those people who understand a little bit about how credit works, you might be less savvy when it comes to fixing a credit score that might be ‘fair’ (579) or even ‘good’ (669), but not ‘very good’ (739), a typical threshold to secure a home loan.

Even small changes to your credit score can have a big impact on the credit you’ll be able to secure and the rates you’ll be offered later on.

Credit Scores, From Bad to Good
300-629 BAD
630-689 FAIR
690-719 GOOD
720-850 EXCELLENT

It’s imperative to not only check your credit score but understand what’s shaping that number months before you plan to buy a home. Why? It takes time — in many cases, longer than months — to improve a bad score.

What makes up your FICO score? Payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).

With that in mind, here are five basic steps you can take to boost your score and move one step closer to homeownership:

Pay your bills on time

If you have three credit cards, student loans, a car payment, and various other open accounts, you can bet that the credit bureaus know when they were opened, how much you’ve paid on each account, and if your payments have been on time. Overall, your ability to pay your bills by the due date accounts for 35% of your FICO score.

If your payments aren’t in good standing, it sends a signal to banks and loan officers that you’re a risky investment. The MyFico website even goes on to say that payment history “tends to be the strongest predictor” of the likelihood that you’ll make future payments on time.

Pay off outstanding debt

If you’ve heard the term “amounts owed,” it’s simply the total amount of debt that you’re carrying. While it’s not as significant when it comes to impacting your credit score, it can paint a picture that you’re already overextended financially. High credit card balances should be paid down before you even think about applying for a mortgage. This will also lower your debt-to-income ratio (or the amount of debt you hold relative to your income).

Reduce Credit Card Balances

High credit card balances relative to your credit limits can negatively affect your credit utilization ratio, which accounts for a substantial portion of your credit score. Aim to keep your credit card balances below 30% of your credit limit. Paying down these balances can boost your credit scores.

Don’t apply for new credit

Policy Genius went so far as to call this “mission-critical.” That’s because applying to open up a new credit card will lead to something called a hard inquiry, which can negatively impact your credit score. A hard inquiry takes place when a lender checks your credit to decide whether to approve a loan, and each application can knock a few points off your credit score. If you need every point you can get, you should avoid all new applications in the months leading up to buying your first home.

Remember, even small changes to your credit score can have a big impact on the credit you’ll be able to secure and the rates you’ll be offered later on.

Have a variety of open accounts

At least 10% of your credit score is determined by the accounts you have open, so in this case, balance is important. You should have a mix of credit cards,  retail accounts, and installment loans (think auto loans). This portfolio not only showcases your spending habits but also your budgeting priorities. Maintaining varied credit accounts demonstrates to lenders that you can handle different types of loans.

Keep Older Accounts Open

The length of your credit history plays a role in your credit score. Older, well-maintained accounts can positively impact your credit scores. Avoid closing older credit card accounts, even if you’re not using them frequently.

Diversify Your Credit Mix

Lenders appreciate a diverse credit mix, including credit cards, installment loans, and retail accounts. If you don’t already have a mix of credit types, consider obtaining a small installment loan or a retail store card.

Check your credit report for errors

Your credit score touches every aspect of your life, from your job, to your home, to your finances and so much more. But when you need your credit score, you rely on the aforementioned credit bureaus to give you a fair assessment of your creditworthiness and call it a day. What you should be doing is checking your credit report for old, inaccurate, and fraudulent information.

Avoid Making Big Purchases

Before applying for a mortgage, it’s essential to keep your finances stable. Avoid making large, unnecessary purchases or taking on significant debt. These actions can negatively impact your credit and raise concerns with potential lenders.

Work with a Credit Counselor

If you’re struggling with credit issues and need professional guidance, consider working with a reputable credit counselor. Credit counselors can provide personalized advice and strategies for improving your credit scores.

Pay Off or Settle Collection Accounts

Collections can significantly damage your credit scores. If you have outstanding collection accounts, consider negotiating with the collection agency to pay them off or settle for a reduced amount. Once resolved, ask for a “paid in full” or “settled” letter, which you can provide to your lender.

Consult with a Mortgage Lender

A mortgage professional can help assess your credit situation and provide guidance on the steps you need to take to improve your credit scores. They can also suggest specific loan programs suitable for your financial profile.

Can You Ever Buy a Home With Poor Credit?

Everyone has debt. In fact, according to Experian’s 2019 Consumer Debt Study, the total consumer debt in the United States topped $14 trillion, with the average American carrying debt upwards of $90k.

Your amounts owed and a low credit score won’t automatically disqualify you from a mortgage, a home equity loan, or a home equity line of credit. Applicants with less-than-perfect credit can often secure financing, but generally, low credit scores will cost you in the form of higher mortgage rates. Those higher rates mean higher monthly payments for principal and interest and higher costs over the life of the loan.

If you really want to boost your bad credit, consider enrolling in the UltraFICO or Experian Boost programs, which also track the cash in your bank account to keep an eye on your financial behaviors. You may also qualify for a first-time homebuyer program.

Finally, you may want to take advantage of the so-called Rapid Rescore, which boosts changes or updates to your credit report that are not yet reflected. This gives you a fresh version of your credit report to show potential lenders during the homebuying process.

Raising your credit scores before applying for a home loan is a wise and proactive approach to secure the best mortgage terms and options. Improving your creditworthiness not only increases your chances of loan approval but can also save you significant money in interest over the life of your mortgage. By following the strategies outlined in this article and maintaining disciplined financial habits, you can strengthen your credit scores and embark on your homeownership journey with confidence. Remember that raising your credit scores is a gradual process, so start early to achieve the best results.

Credit Score Improvement for Home Buying FAQ

How long does it take to build credit for a mortgage?

Building credit from scratch typically takes 6-12 months to establish a score sufficient for mortgage consideration. To qualify for conventional loans requiring 620+ scores, expect 12-18 months of responsible credit use. Start by opening a secured credit card or becoming an authorized user on someone’s established account. Make on-time payments consistently, keep utilization below 30%, and avoid new credit inquiries. FHA loans are more forgiving, accepting 580+ scores after just 6-9 months of positive credit history. Accelerate the process by maintaining multiple active credit lines (2-3 cards optimal), paying balances in full monthly, and disputing any errors on credit reports immediately.

What is the fastest way to improve your credit score to buy a house?

The fastest credit score improvements come from addressing high credit utilization—pay down credit card balances below 30% of limits, ideally below 10% for maximum impact. This can boost scores 20-50 points within 30 days as new balances report. Second, dispute any credit report errors with all three bureaus (Experian, Equifax, TransUnion) using certified mail; corrections typically process within 30-45 days. Third, become an authorized user on a family member’s established, well-managed credit card—their positive history can add to your report within 30-60 days. Request credit limit increases on existing cards without new inquiries. Avoid these score-killers: new credit applications, late payments, and closing old accounts during your 3-6 month mortgage preparation window.

Can I get a mortgage with a 620 credit score?

Yes, you can qualify for a mortgage with a 620 credit score through conventional loans, though you’ll need compensating factors like substantial down payment (10-20%), low debt-to-income ratio (below 43%), and steady employment history (2+ years). However, expect higher interest rates—approximately 0.5-1.0% above top-tier pricing, costing $50-150 extra monthly on a $300,000 loan. FHA loans are more accessible at 620, requiring only 3.5% down but including mandatory mortgage insurance. To improve approval odds and rates, focus on raising your score to 640-660 before applying. Many lenders impose overlays requiring 640+ despite official 620 minimums. Consider delaying your purchase 3-6 months to boost your score 20-40 points through strategic debt paydown and credit optimization.

How much does a credit score increase help with mortgage rates?

Every 20-point credit score increase saves approximately 0.125-0.25% in mortgage interest rate, translating to significant long-term savings. For example, on a $350,000 30-year mortgage, improving from 660 to 720 credit (60-point increase) can reduce rates from 7.0% to 6.5%, saving $110/month or $39,600 over the loan term. The biggest rate improvements occur crossing key thresholds: 620 to 640 (0.5% reduction), 680 to 700 (0.25-0.375% reduction), and 700 to 740 (0.25-0.5% reduction). Scores above 760 receive the best available rates, typically 0.75-1.25% better than 620-score borrowers. Strategic credit improvement before applying is one of the highest-return financial decisions—spending 6 months raising your score from 640 to 720 can save $50,000+ in interest.

What hurts your credit score the most when buying a home?

The most damaging credit mistakes during home buying include: late payments (drop scores 60-110 points, remain on reports 7 years), maxing out credit cards (utilization above 80% drops scores 25-50 points), applying for new credit cards or auto loans within 6 months of mortgage application (each inquiry drops scores 5-10 points), closing old credit accounts which reduces credit history length, and collections or charge-offs (drop scores 70-130 points). Hard inquiries matter less for mortgage rate shopping—multiple mortgage inquiries within 14-45 days count as one inquiry. Avoid furniture financing, new car purchases, or retail store cards during your home search. Lenders re-check credit before closing, so maintaining credit discipline through final funding is critical.

Should I pay off collections before applying for a mortgage?

Paying off collections before applying for a mortgage is situation-dependent. Recent collections (under 2 years old) significantly hurt mortgage approval and should be paid or settled before applying, though payment doesn’t immediately remove them from your credit report. Older collections (3+ years) have diminishing score impact—paying them doesn’t boost your score and may actually reset the 7-year reporting clock with some scoring models. FHA and VA loans require all collections exceeding $2,000 to be paid before closing. Conventional loans are more flexible. Strategy: dispute collections first (30% are errors); negotiate pay-for-delete agreements in writing; consider whether your loan program requires payment. Consult a mortgage lender before paying old collections, as strategic non-payment sometimes results in better approval odds.

How many credit cards should I have to buy a house?

The optimal number of credit cards for mortgage approval is 2-3 established accounts with positive payment history spanning 12+ months. Having zero credit cards signals limited credit management experience and may require manual underwriting. One card provides minimal credit diversity. Four or more cards can raise concerns about available credit and potential debt accumulation, though well-managed accounts aren’t penalized. Ideal profile: 2-3 cards with balances below 10% of limits, no late payments in 24+ months, and average account age exceeding 2 years. Avoid opening new cards within 6 months of mortgage application—each inquiry drops scores 5-10 points and new accounts lower average credit age. Keep old cards active with small periodic charges to maintain credit history length.

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