How to Prepare Your Credit For Buying a New Home: 10 Tips

Last updated 03/20/2024 by

Ready to buy a new home, but not sure if your credit is in good enough shape to qualify you? Preparing your credit to apply for a mortgage and get a loan with a favorable interest rate requires keeping these 10 tips in mind.

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1. Get Your Credit Score

Facing reality is your first step in preparing your credit for buying a house. To get your credit score for free, try CreditKarma or Mint. Both sites enable you to get your score without charge. If you order your score from both sites and they are different, average out the two numbers to get a more accurate score. If you want to be extra sure of your score and see the number most often used by mortgage lenders, pay for your score at FICO.

Here’s a useful article if you’re surprised by your credit score: 10 Important Things You Have To Know About The Recent FICO Credit Score Changes.

2. Check Your Credit Report

While your score gives you the specifics, your credit report offers the big picture. The information reflected on your credit report directly affects your score. For instance, it will show if you have any late payments on record and how much of your credit is currently in use.

Get a free credit report for all three major credit bureaus (TransUnion, Equifax and Experian) by visiting AnnualCreditReport.com or from one of these credit reporting sites. Your report will highlight areas in which you need to make improvements.

3. Know Your Credit Score Goal

Understanding the ideal credit score range for buying a home helps you know what to aim for regarding your credit. Credit scores range from 300 (very poor) to 850 (excellent).

According to Fannie Mae and Freddie Mac, you generally need a score of at least 620 to qualify to buy a home. This is the minimum score. If your credit falls between 620-699, you’ll pay a higher percentage rate and go through a more rigorous application process than if your score is in the 700s. Scores of 740-750 or above usually qualify for the best interest rates on the market.

4. Examine Your Credit Report for Accuracy

Considering that your score is directly affected by what is on your credit report, it’s essential to verify that all of the information on your credit report is accurate. The U.S. Consumer Financial Protection Bureau advises correcting mistakes on your credit report by contacting the credit reporting company that is showing the error as well as the company that is the source of information.

5. Pay Down Credit Card Debt

The lower the percentage of your credit you have in use, the higher your credit score will be. Prepare your credit for buying a new home by paying down your credit card debt as much as possible. Start with the most substantial balances, concentrating first on those cards that are maxed out or nearly maxed out.

We’ve got some great tips on paying down your credit card debts with How to Pay off Credit Card Balances More Effectively.

6. Avoid Using Paid-Off Credit Cards

Once you’ve paid down credit card balances, wait 45 days for the changes to be reflected on your credit report. Also, avoid using your credit cards while applying for a mortgage and while your home is in escrow. You want the balances to stay as low as possible during this time.

7. Leave Old Open Credit Lines Alone

If you have credit lines on your report still showing, even though you paid them off some time ago and aren’t using them, don’t close them. Leaving them alone is good for your credit because a big part of determining your credit score and creditworthiness for getting a mortgage loan focuses on how much credit you have versus how much of it is in use. You want a high amount of credit and a low amount of it in use.

8. Diversify Your Credit Report

In addition to major credit cards, it’s a good idea to have other debt represented on your credit reports, such as student loans and car loans. Known as seasoned tradelines, each of these different types of debt should show up on your credit report at least seven to 12 months before applying for a mortgage loan.

9. Don’t Open New Credit Lines

At least six months before applying for a mortgage, avoid adding new credit of any kind. Even minor credit additions can diminish your chances of getting a mortgage loan. Except for paying off debt, leave all of your accounts alone during this time.

10. Be Patient. It Won’t Happen Overnight

How long it takes to get your score up to snuff for a mortgage depends on a lot of things. This includes what your score is now, and how much money you have available to pay off current debts. Reaching your financial goals doesn’t happen overnight, but keep moving, saving, and preparing your credit. You’ll reach your goal of buying a new home in no time!

Julie Bawden-Davis

Julie Bawden-Davis is a widely published journalist specializing in personal finance and small business. She has written 10 books and more than 2,500 articles for a wide variety of national and international publications, including Parade.com, where she has a weekly column. In addition to contributing to SuperMoney, her work has appeared in publications such as American Express OPEN Forum, The Hartford and Forbes.

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