Your credit score directly impacts your mortgage rate. A difference of just 40-60 points can save you tens of thousands of dollars over the life of your loan. This guide shows you exactly how to improve your score before applying for a mortgage.
Rate Impact: The difference between a 680 and 740 credit score can mean 0.5-0.75% higher interest rates. On a $300,000 loan, that's $30,000-$45,000 more in interest over 30 years.
Credit Score Ranges:
Understanding the components helps you prioritize improvements:
Payment History (35%): Your track record of on-time payments. Even one 30-day late payment can drop your score 60-110 points.
Credit Utilization (30%): How much of your available credit you're using. Aim for under 30%, ideally under 10%.
Length of Credit History (15%): Average age of your accounts. Older accounts help your score.
Credit Mix (10%): Variety of credit types (credit cards, auto loans, student loans). Not critical but helps.
New Credit (10%): Recent credit inquiries and new accounts. Multiple inquiries in a short period can hurt your score.
Impact: Can improve your score 20-100+ points quickly.
Strategy: Focus on cards with highest utilization first. If you have $5,000 in credit card debt across three cards with $10,000 total limits, you're at 50% utilization—too high.
Target: Get under 30% overall, under 10% per card if possible.
Example: Paying down from 50% to 10% utilization can boost your score 40-80 points.
Impact: Lowers utilization without paying down balances.
How: Call your credit card companies and request increases. Many approve instantly if you have good payment history.
Caution: Don't spend the additional credit—the goal is to lower your utilization ratio.
Example: If you have $5,000 in debt on cards with $10,000 limits (50% utilization), increasing limits to $20,000 drops utilization to 25% without paying anything.
Impact: Can add years of positive credit history instantly.
How: Ask a family member with excellent credit to add you as an authorized user on their oldest, lowest-utilization card.
Requirements: The card company must report authorized users to credit bureaus (most do).
Benefit: You inherit the card's payment history and utilization, potentially boosting your score 20-60 points.
Impact: Removing errors can improve your score significantly.
How: Get free credit reports at AnnualCreditReport.com. Review for:
Process: Dispute online with each credit bureau (Experian, Equifax, TransUnion). They have 30 days to investigate.
Impact: Prevents score damage and gradually improves payment history.
Strategy: Set up autopay for at least minimum payments on all accounts.
Recovery: If you have recent late payments, consistent on-time payments will gradually reduce their impact.
Impact: Reduces DTI ratio and shows progress to lenders.
Priority: Focus on high-interest debt first (credit cards), then installment loans.
Mortgage Impact: Lower debt also improves your debt-to-income ratio, helping you qualify for a larger loan.
Impact: Closing accounts reduces available credit (increasing utilization) and shortens credit history.
Strategy: Keep old cards open even if you don't use them. Put a small recurring charge on them (like a streaming service) and set up autopay to keep them active.
Impact: Each hard inquiry can drop your score 5-10 points.
Timeline: Avoid opening new credit accounts 6-12 months before applying for a mortgage.
Exception: Rate shopping for a mortgage within a 14-45 day window counts as a single inquiry.
If You Have Limited Credit: Open a secured credit card or become an authorized user. Make small purchases and pay in full each month.
If You Have Negative History: Time heals. Late payments impact your score less as they age. After 2 years, their impact is minimal.
Impact: Small but helpful for thin credit files.
Strategy: If you only have credit cards, consider a small personal loan or credit-builder loan. If you only have installment loans, add a credit card.
Caution: Don't take on debt just to improve your mix. Only do this if it makes financial sense.
Don't Close Accounts: Reduces available credit and credit history length.
Don't Max Out Cards: Even if you pay in full each month, high balances reported to bureaus hurt your score.
Don't Co-Sign Loans: You're responsible if the other person doesn't pay, and it increases your DTI.
Don't Ignore Collections: While paying them won't remove them from your report, unpaid collections can prevent mortgage approval.
Don't Fall for Credit Repair Scams: Companies promising to "erase bad credit" or "remove accurate negative information" are scams. Legitimate credit repair involves disputing errors—something you can do yourself for free.
30-60 Days:
3-6 Months:
6-12 Months:
Myth: Checking your credit hurts your score. Truth: Checking your own credit is a "soft inquiry" and doesn't affect your score.
Myth: Paying off collections removes them from your report. Truth: Paid collections stay on your report for 7 years but show as "paid," which is better than unpaid.
Myth: You need to carry a balance to build credit. Truth: Paying in full each month builds credit just as well and saves you interest.
Myth: Closing accounts improves your score. Truth: Closing accounts usually hurts your score by reducing available credit and average account age.
Impact: Drops score 130-200+ points.
Recovery: FHA loans available 2 years after discharge. Conventional loans require 4 years.
Rebuilding: Focus on secured credit cards and on-time payments. Scores can recover to 700+ within 2-3 years with diligent effort.
Impact: Drops score 85-160 points.
Recovery: FHA loans available 3 years after. Conventional loans require 7 years.
Rebuilding: Similar to bankruptcy—establish new positive credit and maintain perfect payment history.
Good News: Newer credit scoring models (FICO 9, VantageScore 3.0/4.0) ignore paid medical collections and weigh unpaid medical collections less than other collections.
Strategy: Pay off medical collections if possible. Many lenders use these newer models.
Impact: Student loans themselves don't hurt your score if paid on time. High balances increase your DTI ratio, which affects mortgage qualification.
Strategy: Consider income-driven repayment plans to lower monthly payments and improve DTI.
Free Credit Monitoring: Use Credit Karma, Credit Sesame, or your credit card's free credit score feature to track progress.
Official Scores: Get your actual FICO scores (what lenders use) from myFICO.com. There's a fee, but it's worth checking before applying for a mortgage.
Frequency: Check monthly to track progress and catch errors early.
Ideal Scenario: Credit score 740+, no late payments in past 2 years, utilization under 10%, no recent inquiries.
Minimum Scenario: Credit score 620+ (conventional) or 580+ (FHA), stable payment history for past 12 months, utilization under 30%.
If You're Not There Yet: Wait and improve your score. The rate savings from a higher score often outweigh the cost of waiting 3-6 months.
Be Honest: Explain any credit issues upfront. Lenders appreciate transparency and can often work with you.
Get Pre-Approved Early: Understand where you stand and what needs improvement.
Ask About Rapid Rescore: If you're close to a better rate tier, paying down balances and requesting a rapid rescore (lender pays to update your credit report quickly) might bump you up.
Rate Shopping: When you're ready to apply, shop rates within a 14-45 day window. Multiple mortgage inquiries in this period count as one inquiry.
Improving your credit score takes time and discipline, but the payoff is substantial. Every 20-point increase can save you thousands in interest. Start with quick wins like paying down credit cards and disputing errors, then maintain consistent on-time payments for long-term improvement.
Key Takeaways:
Ready to see how your credit score affects your mortgage rate? Get pre-approved today and we'll show you exactly what you qualify for—and how improving your score could save you money.