
Improving your credit score before applying for a home mortgage can lead to significant savings. Here are expert-backed strategies to enhance your creditworthiness.
Pay Off Small Balances & Consolidate Spending
One of the most effective ways to quickly boost your credit score is to pay off small balances on your credit cards. For example, a recent client of mine, Sarah, had a solid credit history but was surprised to find her score lower than expected when we pulled her credit report. She used several cards for points, discounts, and miles, which led to the report noting “Too Many Open Accounts with Balances,” despite the total being only around $200 across four accounts.
After we advised Sarah to pay off these small balances, she focused on using just one card for her purchases until her mortgage application was processed. This strategic move improved her credit utilization ratio and pushed her score up. As a result, she qualified for a higher credit tier and reduced her closing costs by an impressive $2,400!
Optimize Payment Timing
To maximize your credit score, pay off accounts as soon as the statement arrives rather than waiting for the due date. My client Jessica learned this lesson when she started paying her bills immediately after receiving statements. Credit card companies typically report balances to credit bureaus around the statement closing date. By paying early, Jessica increased her chances that a lower (or zero) balance was reported, which greatly enhanced her credit utilization ratio and helped raise her score in time for her mortgage application.
Additional Best Practices
- Review Your Credit Reports. Obtain free copies from all three major credit bureaus and dispute any errors you find. For example, my client Tom discovered an error on his report affecting his score negatively. After disputing it successfully, he saw an immediate boost in his credit score.
- Avoid New Credit Applications. In the months leading up to your mortgage application, refrain from applying for new credit to prevent hard inquiries on your report. My client Thomas learned this the hard way; after applying for a new credit card just weeks before applying for his mortgage, he faced a dip in her score that could have been avoided.
- Maintain Old Accounts. Keep older accounts open even if you’re not using them regularly. The length of your credit history plays a crucial role in determining your score. My client Mark kept an old credit card active even though he rarely used it, which helped maintain his average account age and positively impacted his score.
- Set Up Payment Reminders. Ensure all payments are made on time since payment history is the most critical factor in determining your credit score.
- Reduce Overall Debt. Pay down existing debt as much as possible, focusing on high-interest accounts first and accounts with high payments and low balances. Installment loans with less than 10 payments left can be omitted from your qualifying debt so paying them off before closing
- Timing Is Key. Implement these strategies 2-6 months before applying for a mortgage to see improvements in your credit score. An enhanced credit profile can help you secure better interest rates and more favorable loan terms, potentially saving you thousands of dollars over the life of your mortgage.
Best practices will help you maintain a great credit score but making a few of these adjustments leading up to your mortgage application can give you an extra boost in savings. This enhanced credit profile can help you secure better interest rates, home insurance, mortgage insurance rates and more favorable loan terms, potentially saving you thousands of dollars over the life of your mortgage.
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