5 Steps To Prepare Your Credit for a Mortgage

So you are ready to take the plunge and apply for a new mortgage loan? Great! Congratulations on making the decision to become a homeowner. With low interest rates, tax advantages, and a host of other benefits that come along with purchasing a home, you have about a million reasons to break free from the shackles of renting.

You can set yourself up for success during the home buying experience by knowing what to expect ahead of time. Most importantly, you should be sure that your credit is in tip top shape so that you can qualify for the most attractive rates and terms available on your new loan. Check out these 5 steps to help you get started.

1. Check Your Credit
There’s nothing worse than filing out a mortgage application only to find some unwanted “surprises” have shown up on your credit reports. Unfortunately, this is a very common problem. However it doesn’t have to be since you can access your own credit scores and reports online 24/7. Plus, contrary to a popular credit myth, checking your own credit does NOT harm your credit scores in any way whatsoever.

You are entitled to a free copy of each of your 3 credit reports once every 12 months from AnnualCreditReport.com. However, if you want your scores from this website then you will have to pay for them from each credit bureaus individually.

An easier solution to accessing your credit scores is also available through a 3-score, 3-bureau credit monitoring service, but you should know that there are generally fees involved for these services as well. (Note: many credit monitoring services only give you data from 1 of the 3 credit bureaus so you want to be careful when choosing the right credit monitoring service to access your credit scores and reports.)

CLICK HERE for a list of great resources where you can access your 3-bureau credit reports and scores. Finding out what is on your credit prior to your loan application should definitely be the first item on your “to do” list during the home buying process.

2. Dealing with Surprises

If your credit reports were all three squeaky clean when you checked them in step 1, then skip down to step 3. However, if you found errors or blemishes on your credit reports, you may have some work to do before applying for a mortgage. 

Thanks to the Fair Credit Reporting Act (FCRA) you have the right to dispute inaccurate and unverifiable accounts with the credit bureaus. You can dispute accounts on your own or you can hire someone to help you with the process. Either way, credit reporting errors should not be ignore as they can be quite hazardous to the health of your credit scores.

3. Optimize Your Credit Scores

Even if you have no errors or derogatory items on your credit reports (e.g. collection accounts, charge-offs, foreclosures, etc.), it may still be possible to improve your credit scores. You can start by taking a long, hard look at your credit card balances.

Paying your credit cards down to $0 can potentially have a very BIG impact upon your credit scores. Can’t afford to pay off all of your credit cards? You still have options. Paying down some of your cards to zero can still be beneficial to your credit scores. Plus, you can always consider using a personal loan to transform that score-lowering credit card debt into much more credit score friendly debt – an installment loan.

4. Avoid Mistakes!

When preparing to apply for a mortgage, you need to be a credit boy or girl scout. You don’t want to make any credit mistakes which could result in lower credit scores and a loan denial.

Some of the most common mistakes you should avoid include making late payments on existing accounts, charging up your credit card balances, opening new accounts (that new car loan needs to wait!), and having your credit report pulled excessively by too many lenders (unless those inquiries occur within a short window of time for rate shopping purposes).

5. Monitor Your Credit

There is no better time to keep a close eye on your credit than while you are preparing to apply for a mortgage. However, with so many credit monitoring options available, it can be difficult to choose.

Keep in mind that a credit monitoring service which allows you to keep an eye on just one credit bureau and one credit score may not be sufficient. After all, when you apply for your mortgage the lender is going to take a look at all three of your credit reports and scores – Equifax, Trans Union, and Experian.

Buying a new home is an incredible and exciting experience. However, credit problems during the mortgage application process can often turn what could be a wonderful experience into a nightmare. Follow these five steps above and set yourself up for mortgage success. It can be tempting to take shortcuts, but putting in the work on your credit ahead of time will pay off every time.


michelle-l-black-credit-expert-freelance-writer

Michelle Black, Founder of CreditWriter.com and HerCreditMatters.com, is a leading credit expert, author, writer, and speaker with over a decade and a half of experience in the credit industry. She is an expert on credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).