How to Prepare Your Credit Before a Mortgage

Your credit is one of the first things a lender looks at when you apply for a mortgage. A lot of what shapes it is within your control, especially if you start well before you fill out an application. These are the habits I walk people through in the months leading up to applying.

Why your credit matters to a lender

Your credit report is the record of how you have handled borrowed money: your cards, car loans, student loans and any past mortgages. Your credit score is a summary built from that report. It gives a lender a quick read on how you have managed debt.

A lender uses both to judge risk. Your credit can affect which loan programs may be available to you and the terms a lender may offer. You do not need a perfect history to apply. What causes trouble is the surprise you did not know about until a lender found it.

That is why the work starts with you looking first.

Start by pulling your credit reports

The major credit bureaus are Equifax, Experian and TransUnion. Each one keeps its own file on you, and they do not always match. A creditor may report to one bureau and not another, or an error may show up on only one report. Federal law lets you get your reports for free through the official site the bureaus set up for that purpose, so look at all of them.

Checking your own report is what is called a soft inquiry. It does not affect your score, so you can look as often as you like.

When you read through each report, look for:

• Accounts you do not recognize
• Late payments you believe you made on time
• Balances or credit limits that are reported wrong
• Debts you paid off that still show as open or unpaid
• The same debt listed more than once
• Mistakes in your name, address or other personal details

Make notes as you go. If something looks off, you will want the details handy when you contact the bureau.

Dispute errors the right way

If you find a genuine mistake, contact the bureau that is reporting it. You can usually file a dispute online or by mail. Explain clearly what is wrong and include copies of anything that backs you up, like a payoff letter or a bank statement showing a payment cleared. It can also help to contact the creditor that reported the information.

Keep copies of everything you send and everything you get back. Investigations take time, which is one more reason to start early.

A few things to keep in mind:

• Disputing information that is accurate will not make it go away. The process is for correcting real errors.
• An open dispute on your file can sometimes slow down a mortgage application. Some lenders ask that disputes be resolved before the loan moves forward.
• If you are already working with a loan officer, talk with them before you file anything new. Timing matters.

Bring your card balances down

One of the biggest factors in your score is something called credit utilization. That is how much of your available credit card limits you are using. Lower usage generally works in your favor, and the good news is that this part of your score can respond fairly quickly once balances come down.

A few practical ways to work on it:

• Pay down revolving balances where you can, starting with cards that are closest to their limits.
• Pay before the statement closing date. The balance on your statement is often the one that gets reported to the bureaus, so paying before that date can help your report reflect a lower number.
• Keep older cards open. Closing a card reduces your total available credit and can shorten the length of your history. A card with no balance is usually more helpful open than closed.

Lower balances can also help another number lenders care about: your debt to income. That compares what you owe each month on debts to what you earn each month. Smaller balances often mean smaller minimum payments.

Most important of all, pay every bill on time. Payment history carries a lot of weight, and a single late payment in the months before you apply can hurt. Setting up automatic payments for at least the minimum due is a simple safety net.

Hold off on new credit

This is the habit people most often break by accident. When you apply for credit, the lender usually does a hard inquiry, which can lower your score a little. A new account also adds a new payment and lowers the average age of your accounts.

In the months before you apply, and all the way through closing, try to avoid:

• Financing a car, furniture or appliances
• Opening a store card to get a discount at checkout
• Using buy now, pay later plans for big purchases
• Cosigning a loan for someone else
• Moving balances to a new card

Many lenders check your credit again right before closing. A new account that shows up at that stage can mean more paperwork, a delay, or changes to your loan. If you need to make a big purchase, ask your loan officer first.

Shopping for a mortgage itself is different. Credit scoring models generally treat several mortgage inquiries made within a short window as a single inquiry, so comparing lenders does not have to cost you much.

A few more habits that help

• Ask before you pay old collections. Paying is often the right move, but how and when you do it can matter. Talk it over first.
• Keep checking your reports. Look again after disputes are resolved and balances are paid down to confirm the changes posted.
• Keep your financial life steady. Avoid big changes to your accounts while you are getting ready.

If you want to see what the rest of the process looks like, the purchase loans page and our other articles cover the next steps.

Talk it through before you apply

Every credit file is different, and the right order of steps depends on what is in yours. If you would like help reading your reports or deciding what to tackle first, book a free call with me. We can go over where you stand and what may make sense before you apply. You can schedule a time that works for you here.