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 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).

Building a Credit Score from Scratch

Perform a quick Google search and you will discover that there is no shortage of articles and ideas online clamoring to offer you tips and pointers about how to best manage your credit. You can find videos, podcasts, and even television shows from many self-proclaimed "gurus" who are quick to share their credit secrets with you. Add in the well meaning credit advice you may have received from your family, friends, and acquaintances and before long your head will be spinning with dozens of contradictory credit improvement strategies.

Unfortunately, the truth is that many self-proclaimed "professionals" and even your loved ones can give really bad advice when it comes to your credit. Most credit advice is likely given with a very well-meaning spirit; however, bad credit advice can hurt you even if the damage is unintentional. It is important to be careful whose advice you follow when it comes to your credit, especially when you are building credit for the very first time. Here are 4 tips to help you build great credit from scratch.

Tip #1: Do Not Assume Anything

If you are preparing to build credit for the first time you may genuinely believe that your credit reports are completely blank. However, assuming that this is the case without verification is a mistake. You should begin by checking all 3 of your credit reports from Equifax, TransUnion, and Experian.

You are entitled to a free copy of these reports every 12 months from AnnualCreditReport.com. You can also access your 3 credit reports and 3 scores (if they exist) via a variety of credit monitoring services, such as those featured on GreatCredit101.com. You should develop the habit now of checking your credit reports often. Although the Fair Credit Reporting Act does give you the right to expect accurate information to appear on your credit reports, it is up to you to monitor your those reports in order to ensure that they remain error-free.

Credit Expert Advice: If you discover errors on your credit reports then you have the right to dispute those errors on your own or you can hire a reputable credit expert to assist you.

Tip #2: Establish Revolving Accounts

After you have checked your credit reports, if they are indeed completely blank, then you might consider opening a few credit card accounts - aka revolving accounts. Secured credit cards can potentially be a good place to start when you have zero established credit. These types of credit cards typically offer less strict qualification standards when compared with the requirements for unsecured credit card accounts. In other words, qualifying for a secured credit card is generally an easier process even if you have no credit history or damaged credit history in the past.

Credit Expert Advice: Just remember, if you open a credit card account it is absolutely essential that you keep all of your payments on time every single month. It is also a good idea to never revolve a credit card balance from month to month either. If you manage your new account well it has a great potential to help you build positive credit and stronger credit scores.

Tip #3: Establish an Installment Account

Credit scoring models such as FICO and VantageScore like to see that you know how to manage a variety of account types. Consumers with a good mix of accounts showing up in their credit histories will potentially be rewarded with higher credit scores. However, a problem which consumers with no established credit often face is the fact that it can be difficult to qualify for certain types of loans with little to no credit. Your solution? Enter the credit builder loan.

Many local credit unions and some online lenders will offer credit builder loans as a means for their customers to rebuild or build credit for the first time. Credit builder loans are generally issued for a low dollar amount ($500 - $1,000) and the funds are held in a savings account while you make the monthly payments to satisfy the loan. Once the loan has been paid in full the funds are released to you, plus any interest earned. If you managed your account properly then you should have around 6-12 months of on-time payment history showing up on your credit reports.

Credit Expert Advice: If you are thinking about applying for a credit builder loan product, be sure to ask the credit union or lender if they will report the account to all 3 credit bureaus. On-time payments are also essential, otherwise your new credit builder loan could hurt your credit instead of helping it.

Tip #4: Ask a Loved One for a Favor

Asking a loved one or a family member to add you as an authorized user to an existing credit card account is another potential strategy which may help you to build credit from nothing. Though it is true that authorized user accounts will not show up on your credit reports 100% of the time, in most cases when you are added as an authorized user to a credit card the account will show up on your 3 credit reports within a few months. Plus, if you are a parent then authorized user accounts represent a great way for you to help your children establish credit without dipping your toes into the very dangerous waters of co-signing.  

Credit Expert Advice: Before being added to any account as an authorized user you should be sure that the account has a flawless payment history and a low or $0 balance. Otherwise, being added as an authorized user could backfire and hurt your credit instead of having a positive impact.


About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of 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 here.

Who Is Allowed to Check Your Credit Reports?


Accessing your credit information is easier now than it has been at any other point in history. Thanks to the Fair and Accurate Credit Transactions Act, an amendment to the Fair Credit Reporting Act (FCRA), you even have the right to view a free copy of all 3 of your credit reports every 12 months. To claim your free reports from Equifax, TransUnion, and Experian simply visit AnnualCreditReport.com. Depending upon your state of residence you may have access to additional free copies of your 3 credit reports each year as well.

Even after you have exhausted your free annual credit reports, there is no shortage of websites online which will grant you access to your credit reports and possibly your scores either for free or for a fee. This easy access to your credit information is certainly a good thing for consumers. However, the ease of access might also have you concerned about who else can put their hands on a copy of your credit reports.

The good news is that the credit reporting agencies (CRAs) are not simply allowed to release your credit information to anyone who asks for it. Instead, the FCRA lays out some very specific rules regarding to whom the CRAs may disclose your credit information. In order to access your credit report a company must have what is legally referred to as Permissible Purpose. Read below for a list of some of the most common reasons your credit reports may be accessed legally. 

Court Order

Per the FCRA if a judge orders the CRAs to disclose your credit reports, legally they are bound to hand them over.  

Request from You, the Consumer

You also have the right to access you own credit reports as often as you like. As already mentioned, you even have the right to a free copy of your 3 reports annually. Beyond that you can still request unlimited additional copies of your credit reports, though you might be charged for the privilege of doing so.

Credit Transactions

You probably already know that when you apply for a loan or credit card the bank or card issuer is going to check your credit as part of the application process. In general this is 100% legal under the FCRA.

Employment Screening

Current and prospective employers also have permissible purpose to pull your credit reports. However, your written permission is required first. There is also a common myth that employers may access your credit scores as well, but the truth is that employers may access your credit reports only.

Insurance Underwriting

Insurance companies often rely upon your credit information in order to determine the risk of doing business with you and, if they choose to take you on as a customer, how much to charge. According to the FCRA this is typically permitted.

Account Review

Under the FCRA your existing creditors are permitted to obtain your credit reports as well. Current creditors may pull your reports and scores to determine whether your risk level has changed and if they wish to continue doing business with you.

Child Support

Per the FCRA your credit reports can legally be used to determine how much you can afford to pay in child support.

Collection Purposes

Like it or not, collection agencies are often able to pull your credit reports according to the FCRA and, unfortunately for the consumer, they do not need your permission to do so. As long as the collection agency follows the rules, these reports may be used for skip tracing purposes (aka finding you) and for determining your capacity to pay your debts.

Prescreened Credit Card Offers

Have you ever received a "preapproved" offer in the mail? If so, the CRAs likely sold your information as part of a large mailing list to a credit card issuer. Your full credit report was not given to the card issuer, but due to a specific set of search criteria the card issuer probably has a very good idea of the information contained in your report. Although you did not specifically authorize the access or even apply for a loan, this disclosure of your credit information is still allowed under the FCRA. If you want to stop the CRAs from selling your credit information for prospecting purposes then you will have to visit OptOutPrescreen.com to officially make the request.

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of 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 here.