Getting Your Credit Mortgage-Ready Before You Buy

When you apply for a mortgage, your credit tells a lender a story about how you handle borrowed money. A stronger story can mean more loan options and better terms, depending on your situation. The best part is that you have more control over that story than you might think, especially if you start a few months before you plan to buy.

Start With a Clear Picture

Before changing anything, pull your credit reports from all three bureaus. Read every account line by line. Look for balances that are reported incorrectly, accounts you do not recognize or late payments that you believe are mistakes. If you find an error, file a dispute with the bureau reporting it and keep copies of your documentation.

Next, build a simple budget. List your fixed bills, such as rent, car payment and insurance, then your variable costs like groceries and gas, and finally the extras. Seeing it all on one page shows you how much you can realistically put toward debt each month.

Bring Your Balances Down

How much of your available credit you are using, often called utilization, is one of the bigger factors in most scoring models. Carrying high balances on credit cards can drag your score down even if you never miss a payment.

• Pay more than the minimum: Even a modest extra amount each month shrinks balances faster and saves interest.
• Pick a strategy: Some people target the highest-interest card first. Others knock out the smallest balance for a quick win. Either works if you stick with it.
• Avoid new debt: Hold off on financing furniture, a car or other big purchases until after you close.

Paying down revolving balances also helps your debt-to-income ratio, which lenders look at separately from your score.

Make Every Payment Count

Your payment history is a major part of your score, so consistency matters. A single late payment can set you back, while months of on-time payments slowly build trust.

A few habits that help:

1. Set up automatic payments for at least the minimum due on every account.
2. Add calendar reminders a few days before due dates as a backup.
3. Keep paying rent, utilities and phone bills on time too. Some of these may not show on your credit report, but a lender may still look at them, and falling behind can lead to collections that do hurt.

Build Credit if You Have Little or None

Having no credit history can be almost as challenging as having poor credit, because a lender has nothing to evaluate. If that sounds like you, consider opening one card with a small limit, using it for a regular expense like gas and paying it off in full each month. A secured card or becoming an authorized user on a family member’s well-managed account are other common starting points.

Just be careful not to open several new accounts at once right before applying. Each application can create a hard inquiry, and a cluster of new accounts can make a lender cautious.

Know which programs fit your credit

Credit requirements differ from one loan type to another. For example, FHA loans allow 3.5% down with a credit score of 580 or higher, which is why they are popular with buyers who are still building credit. Conventional loans, meanwhile, typically reward higher scores with lower mortgage insurance costs. Comparing options early can show you which target to aim for and how much time you may need.

Not sure where your credit stands or what to work on first? A FLO Mortgage loan officer can review your situation and suggest next steps, even if you are months away from buying. Meet our team and start the conversation.

This article is for general education and is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines and program availability. FLO Mortgage, Company NMLS #1835856. Equal Housing Opportunity.