How to get your credit mortgage-ready

When shopping for a home, a higher credit score can help you qualify for a lower interest rate — which could save you thousands of dollars over the life of your mortgage. And if your score is too low, you may not qualify for a mortgage at all. That’s why it’s a great idea for home shoppers to increase their credit scores as much as possible.

Whether you’re like many Americans who struggle with bad credit, or you want the best deal possible for your home loan, you can take steps to improve your credit-worthiness. Here’s a look at some common sense strategies to help boost your credit score.

1. Always make payments on time

Making your payments on time is one of the most important factors in what determines your credit score. Your record on bill paying accounts for 35% of the overall score — so it's important you pay bills on time. Even if you can only make your minimum payments, always ensure they are made on time.

2. Try to reduce balances

Having a high balance on your lines of credit can negatively impact your score. So if you’re in the market for a new home, it’s a great idea to reduce your balances. Making more than the minimum payment each month will help reduce your balances faster. In an ideal situation, you’d pay your credit card balances in full each month, as this can help you avoid paying interest every month. But even throwing in an extra $20 to $50 each month is a good idea to help reduce the overall debt and help boost your credit score.

3. Don’t run up the entire balance

Keeping your credit card balances low means you’ll have a low utilization rate, which can help you boost your credit score. The general rule of thumb is to keep your utilization rate at 30%, so if you have a credit limit of $1,000, you’ll want to keep your balance under $300.

4. Don’t apply for new credit

When you apply for a new credit card or loan, a hard inquiry will be made on your credit -- which can temporarily lower your credit score. So if you’re shopping for a new home, don’t apply for new cards and lines of credit. And when store clerks offer you a discount if you just open an account, say no.

It’s important to note that when you are shopping for a mortgage, credit bureaus are aware that potential borrowers will “rate shop” with up to three or more lenders. So you generally have between a 14- to 45-day window, depending on which credit bureau, where all credit pulls are consolidated and considered just one.

5. Check your credit report and fix credit mistakes

In addition to cleaning up your debts, it’s also a good idea to check your credit report to make sure it is accurate. This is important: Items that are just plain erroneous can stay on your report for up to 10 years if they are not disputed.

By disputing items on your credit report, you put the wheels in motion to clean up the report and improve your credit score.

You can request a free annual copy of your credit report from each bureau at  AnnualCreditReport.com or by calling 877-322-8228.

6. Don’t close all your old credit card accounts

Did you know that the length of your credit history is factored into your credit score? Credit length accounts for 15% of your credit score, so a long history of making payments on time can increase your credit score. While shopping for a home, if you have credit cards with a history of on-time payments, keep them open, even if you don’t use them any more.