Maximize Your Credit Score Before Applying For a Mortgage Loan

Buying a home is probably the single largest investment most people make in a lifetime.

​ By preparing yourself and your credit profile prior to making a home purchase, you can ensure a smooth finance process and can potentially save thousands on your loan.

Getting Prepared

Start by checking your credit report through your lender or through Annual Credit Report or Free Credit Report.

Keep in mind if checking your own credit online through one of the consumer websites, you are not getting a FICO score; you are getting a Consumer Credit Score.

When you apply for a mortgage through a mortgage lender, the reports they use will have a different scoring model than the one you obtain online. Consumer Credit Scores are generally going to be higher than the FICO score pulled by your lender.

To get the best possible mortgage rate, make sure your credit history is healthy and accurate. Efforts should focus on paying bills on time, reducing your debt balances, avoiding new inquiries and clearing negative inaccuracies from your credit report.

Make sure the information on your credit report is correct, and fix any problems you discover. Generally, you should allow for 30-90 days for correcting inaccuracies.

Improving your credit score

It is important to note that raising your credit score is no overnight feat. It takes time, and there is no quick fix. In fact, quick-fix efforts can sometimes backfire. The best advice is to manage credit responsibly over time.

• 1Pay Your Bills On Time
• 2Negotiate Collections 
• 3Maintain Low Balances
• 4Don’t Open New Accounts,  Unless Necessary
• 5Length of Credit History
• 6Re-establish Your Credit History to if You Have Experienced a Derogatory Event
• 7Check Your Credit Regularly to Ensure There Are No Errors
• 8Note:  It is OK to Request and Monitor Your Own Credit
• 9Limit Your Inquiries to a 30-Day Period  

1.    Pay Your Bills On Time

Delinquent payments and collections can have a major negative impact on your credit score. Even one payment can lower your score anywhere from 50-100 points depending on the individual’s credit profile. If you have missed payments, work to get current and stay current. The longer you pay your bills on time, the better your credit score.

2.    Negotiate  Collections

Be aware that paying off a collection account will not remove it from your credit report. It will remain on your report for seven years, and continue to negatively impact your score. It is always better to negotiate a deletion of the account with the collection agency before paying it. Only a deletion of the account may improve your score, depending on your credit profile.

3.    Maintain Low Balances

Keep balances low on credit cards and other revolving debt. High outstanding debt can affect a credit score significantly. The optimal balance to limit ratio is 30% to maximize your scores, if not paid off all together each month.

4.    Don’t Open New Accounts, Unless Necessary

​ Every time you open a new account, there are three potential negative factors that may lower your scores. First, there is a new inquiry on your credit. Second, a new account has a short credit history. Third, if you put a balance on that account, this may lower your score as well. So, it is best not to open any new accounts unless it is necessary

5.    Length of Credit History

If you have been managing credit for a short time, do not open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.

6.    Re-establish Your Credit History if You Have Experienced a Derogatory Event

Opening new accounts responsibly and paying them off on time will raise your credit score in the long term.

7.    Check Your Credit Regularly to Ensure There Are No Errors.

Checking your credit reports regularly to be sure they are accurate and error-free is a good idea. In fact, maintaining accurate credit reports is a part of good credit management, which can help to improve your credit scores over time. Checking your score at Annual Credit Report or any other consumer websites does not count as an inquiry and will not hurt your credit score.

8.    Note: It is OK to Request and Monitor Your Own Credit

This will not affect your score, as long as you order your credit report directly from the credit reporting agency, such as Experian, Equifax, or TransUnion, or through an organization authorized to provide credit reports to consumers, such as Annual Credit Report, or Free Credit Report.

9.  Limit Your Inquiries to A 30-day Period.

If you need to obtain a loan, do your rate shopping within a focused period of time, such as 30 days. Credit scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.

Fixing a credit score is more about correcting errors in your credit history (if they exist) and then following the guidelines above to maintain consistent, good credit history. Raising your scores after a poor mark on your report or building credit for the first time will take patience and discipline. Many resources are available to offer further guidance such as My Credit Guy, a full-service credit restoration firm helping clients address every aspect of the credit report in an effort to qualify for the best loan programs and interest rates possible.