How to Increase Your Credit Score Before Applying for a Home Loan

Your credit scores directly drive home loan interest rates. Because even a small increase in your interest rate can equate to tens of thousands of dollars or more in additional interest charges throughout a loan’s life, you understandably want to do what you can to establish the lowest interest rate possible on your new home loan. With this in mind, you may be wondering what you can do to increase your credit scores before you apply for your new mortgage. There are a few strategic steps that could work wonders.

One option is to decrease your credit utilization rate. In short, a higher available balance on your credit cards will generally yield a higher credit rating. You can increase credit utilization in two ways. First, you can pay down existing balances. Second, you can ask for a credit limit increase. An alternative to requesting a credit limit increase is to open a new account. However, this should be done with care. Opening a new account is not always effective because the age of your accounts is taken into account by the credit bureaus. Regardless of the method used, you should make your move at least a few months before you apply. This gives your credit scores time to reflect your changes.

For many applicants paying down existing debt balances takes time, but this may be most beneficial to you when you apply for a mortgage. The reason is that a lower credit card balance equates to lower monthly payments. This impacts your debt-to-income ratio, which is a driving factor in underwriting decisions.

Are you interested in learning what loan terms you may qualify for? Our MortgageDepot lending team can help you discover the options available to you based on your current credit rating.

Contact one of our loan consultants to learn more.