Improve Your Credit Score Before Applying for a Loan
To qualify for a lower loan rate, follow this timeline to boost your score.
- (opens in new tab)
- (opens in new tab)
- (opens in new tab)
- Newsletter sign up Newsletter
We’re hoping to buy our first house later this year, and we’re wondering what we should be doing over the next few months to improve our credit before we apply for a mortgage. We have pretty good credit scores, but we would like to try to make them even better.
It’s a great idea to start working on improving your credit score several months before you apply for a big loan, whether you are buying a house, refinancing or buying a car. Boosting your score could help you qualify for a lower loan rate and save you thousands of dollars over the life of the loan. Of course, paying your bills on time has a big impact on your credit score, so be particularly careful not to miss any deadlines before you apply for the mortgage. Here are other strategies (and a timeline for taking them) that aren’t as obvious but can also make a big difference.
Six Months Before You Apply
Don’t open or even apply for any credit cards. Lenders look at “credit inquiries,” which show that other lenders have asked for your credit record and indicate that you might be about to take out a lot of new debt, making it tough to pay your bills on time. Inquiries made within the past several months could mean you've taken on new debt that hasn't yet been reported, says Maxine Sweet, of the credit bureau Experian.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Don’t close any credit cards. Almost 30% of your FICO score, the one most lenders rely on, is based on the amounts you owe, including how much of your available credit you've used (called your "credit utilization ratio"). If you close a card that had a high credit limit but keep your balance the same on your other cards, it will look as if you’re maxing out your available credit, which can hurt your score. If you want to close credit card accounts you don’t use -- to avoid paying an annual fee, for example -- try to do it more than six months before you apply for a major loan. For more information, see Close a Credit-Card Account to Avoid Fees?
Check your credit reports for errors. You can get free copies of your credit reports from each of the three credit bureaus every 12 months at www.annualcreditreport.com (opens in new tab). If you’ve already received your free reports for the year, you can order your credit reports directly from the credit bureaus at Experian (opens in new tab), TransUnion (opens in new tab) and Equifax (opens in new tab). It’s important to check your report from all three bureaus because mortgage lenders usually pull credit scores based on each of these reports and base your rate on the median score. Errors on just one report can affect your interest rate even if the other two reports are accurate. Although disputes are generally resolved within 30 to 60 days, the process can take longer if, for instance, you have to mail documents back and forth. “It’s always better to have a little extra time in case you run into a particularly difficult scenario,” says John Ulzheimer, president of consumer education at SmartCredit.com (opens in new tab).
Two Months Before You Apply
Start paying down your card balances, with the goal of getting to a zero balance. “Paying down your cards is by far the most actionable way to improve your scores quickly,” says Ulzheimer. Starting two months in advance is key, he says, because the low balances don’t always appear on your credit report right away. “It takes about that long for the credit reporting to truly update the accounts to show zero-dollar balances,” he says.
If you have to add new charges, keep them to 10% or less of your available credit, whether or not you pay off your credit card bill in full every month. “A low ratio is worth almost as much as paying your bills on time,” says Ulzheimer. The lower the utilization ratio, the better. “The people who have the highest FICO scores (760+) have average utilization of 7%,” he says.
Once you do start shopping for a mortgage, “rate shop for a given loan within a focused period of time,” says Anthony Sprauve, of FICO. Those credit inquiries can affect your score if it looks to prospective lenders as if you’re about to take on a lot of debt. The FICO score recognizes that you may be shopping around for rates before you take out a mortgage, which could cause several inquiries into your credit report but result in only one loan. As a result, all inquiries for a mortgage made within a limited time period only count as one inquiry. “Thirty days is a safe bet,” says Sprauve.
And don’t stop following these strategies just because you apply for a mortgage -- keep them up until you close on the house. “You’re not out of the woods until you have the keys in your hand,” says Ulzheimer. “Lenders can pull a new set of credit reports and scores as late as the day of closing.”
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
-
-
Is Retirement in 2023 Still Possible?
Yes, it is, if you have a customized plan specific to your retirement. If you do, you’re in the minority, though, so here are some ways to develop that plan.
By Nicholas J. Toman, CFP® • Published
-
Top Money Market Accounts 2023
Money market accounts are interest-bearing accounts at a bank or credit union, typically paying high interest rates. Here are the best right now.
By Erin Bendig • Published
-
Credit Report Error? They All Matter
credit & debt Don't dismiss a minor error. It could be the sign of something more serious.
By Kimberly Lankford • Published
-
Insurance for a Learning Driver
insurance Adding a teen driver to your plan will raise premiums, but there are things you can do to help reduce them.
By Kimberly Lankford • Published
-
529 Plans Aren’t Just for Kids
529 Plans You don’t have to be college-age to use the money tax-free, but there are stipulations.
By Kimberly Lankford • Published
-
When to Transfer Ownership of a Custodial Account
savings Before your child turns 18, you should check with your broker about the account's age of majority and termination.
By Kimberly Lankford • Published
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
By Kimberly Lankford • Published
-
When It Pays to Buy Travel Insurance
Travel Investing in travel insurance can help recover some costs when your vacation gets ruined by a natural disaster, medical emergency or other catastrophe.
By Kimberly Lankford • Published
-
What Travel Insurance Covers When Planes Are Grounded
Travel Your travel insurance might help with some costs if your trip was delayed because of the recent grounding of Boeing 737 Max planes.
By Kimberly Lankford • Published
-
Ways to Spend Your Flexible Spending Account Money by March 15 Deadline
spending Many workers will be hitting the drugstore in the next few days to use up leftover flexible spending account money from 2018 so they don’t lose it.
By Kimberly Lankford • Published