4 Tips to Boost Your Credit Before Applying for a Mortgage

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Increasing your credit score is often possible if you make the right moves. Here’s what to focus on ahead of seeking a mortgage pre-approval. 

Your credit score can have a direct impact on your mortgage interest rate, and thus on your total cost of borrowing when you buy a home.

For example, as of May 18, 2023, a person with a credit score of between 760 and 850 who was borrowing $300,000 would be offered a mortgage with an average APR of 6.445% and would have an average monthly payment of $1,885. But, someone with a score between 620 and 639 would be offered an average rate of 8.034%, which would come with a monthly payment of $2,208. That’s a notable difference.

Since you will end up paying a lot more with a lower score, it’s worth trying to boost your credit prior to the time you actually apply for a mortgage loan. Fortunately, taking these four steps can help you to do that.

1. Pay down your debt

Your credit utilization ratio is the second most important factor when your credit score is determined, after payment history. The amount you owe, relative to credit available to you, accounts for about 30% of your credit score.

Since this is such an important factor in your score determination, paying down what you owe can make a big impact on your credit score and your ability to get an affordable mortgage loan. Ideally, you should try to get your debt down to a point where you are using less than 30% of the credit that is available to you, but even lower is best.

Paying down debt also helps your debt-to-income ratio, which is your debt relative to your income. Mortgage lenders also like your DTI ratio to be as low as possible (typically below 36%, including your new home loan payment), so you’ll get a double benefit from debt paydown.

2. Request credit limit increases

You can also improve your credit utilization ratio by asking for a credit line increase. For example, say you owe $500 on a credit card with a $1,000 limit. You have a 50% credit utilization ratio, which is considered too high and which will hurt your score. But if you requested a credit limit increase and your new limit was bumped to $2,000, you would have just a 25% utilization ratio — which is below the recommended 30% maximum.

This can be a quick way to improve your utilization ratio and thus your credit score.

3. Write a goodwill letter

If you have black marks on your credit record, like a late payment, this can really hurt your credit score and make it harder for you to get approved for an affordable home loan. Sometimes, your creditor may be willing to remove this record of a past problem if you simply ask them to — especially if you have been a good customer. You can write a goodwill letter asking for this favor and see if your creditor is willing to help you out.

4. Become an authorized user

Finally, you may be able to piggyback off someone else’s good credit to improve your own credit score. If you have a family member or friend who has a credit card with a high credit limit, low utilization ratio and on-time payment history, ask if they will make you an authorized user.

When you become an authorized user, you’re added to the account without a credit check on your part and the account shows up on your credit history. You benefit from this positive account being reported on your record. You also get the ability to use the card, but you won’t want to do that as you wouldn’t want the person who added you as an authorized user to get stuck footing the bill for your charges.

By taking these four steps, you may be able to make a noticeable improvement in your credit score. This will help you get a more affordable mortgage loan and make becoming a homeowner easier.

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