Figuring out your budget is one thing, but you’ll also need to get your bearings when it comes to your credit situation. Credit scores range from 300 – 850, and lenders require a score of at least 620 to approve a mortgage. To qualify for the best interest rate available, you will need a credit score of no less than 720. Several factors affect your credit rating:

  • Your payment history: Do you make your monthly payments by the due date every month? A late payment can be almost as damaging as no payment at all.
  • Your overall debt burden: High balances on multiple accounts tell lenders you may be overextended.
  • The length of time you’ve had credit: A long history of prompt payments and paid off accounts improves your score.
  • Your available credit: Many open accounts with low balances and lots of available credit are a red flag for lenders, signaling a risk for future credit problems.
  • The types of credit accounts you have: Lenders prefer to see both secured (a car loan, for example) and unsecured (credit and charge cards) accounts; it’s a sign of financial responsibility.

How to Improve Your Credit Before You Buy

Fortunately, there are also some things you can do to build your credit. You’ll get the best mortgage terms with a high credit score and a low debt-to-income ratio. Take steps now to boost your score before you see a lender.

  1. Request a credit report from the three major credit bureaus (Equifax, Experian, and TransUnion), and check them carefully for errors. If you do spot a mistake, make sure it’s corrected with all three credit agencies.
  2. Never make the minimum monthly payment on your credit card bills. It’s best to pay them in full each month, but if that’s not possible, pay as much as you can afford. Keep in mind that balance transfers can lower your overall credit score.
  3. If you’ve had credit problems, wait at least a year before you apply for a loan. Lenders are more favorable the more time has elapsed since your last late payments.
  4. It’s best not to open any loans or credit accounts in the months immediately before you apply for your mortgage. High levels of available credit can lower your credit score.
  5. Once you’ve applied for a mortgage, freeze your spending until you close on your home. Don’t apply for any new credit cards or loans, and don’t make any major purchases on existing cards.
  6. Target two or three favorite mortgage lenders and apply to them all at the same time. Too many credit bureau inquiries lower your credit score, but several inquiries in a short period by a single type of lender will typically count as only one inquiry.
  7. Stay away from finance companies. In addition to the high-interest rates, most lenders view finance company accounts as evidence of bad money management.

To learn more about how your credit score is calculated, visit You also can request a free credit report at


Become an insider