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

It’s only after careful planning that the idea of owning a home begins to feel less like a far-off dream and more like an attainable reality. In the best-case scenario, new home owners will put a 20 percent down payment on a home to optimize mortgage repayment options. But there are several financial wellness checks you’ll want to conduct before you sign on the dotted line and submit your home loan application.

In addition to your income level, debts, and assets, you’ll also need to disclose your credit history, including your credit score. It’s never too late to boost your credit score, no matter where it stands. Here are six simple ways to improve your credit score before you start applying for a home loan.

1. Assess Your Current Situation

Before you can improve your credit, you need to know your starting point. National credit reporting companies such as Equifax, Experian, and TransUnion offer free credit reports, which take only minutes to complete. 

Your results will reflect a FICO® Score between 330 to 850. To buy a home, applicants must maintain at least a “fair” credit rating, but ratings of “good” and above are best. In its FAQ document, FICO lays out this score range

  • 579 and below: Poor
  • 580-669: Fair
  • 670-739: Good
  • 740-799: Very good
  • 800 and above: Exceptional

Credit scores are based on a wide range of personal financial and credit history. Also in its FAQs, FICO explains that its scores are broken down into the following categories:

  • Payment history (35%)
  • Amount owed (30%)
  • Length of credit history (15%)
  • New history (10%)
  • Credit mix (10%)

Thinking of buying your first home? Download The Essential Guide for First-Time  Home Buyers. >>

2. Comb Through Money Owed and Recurring Payments

Get an intimate look at your spending habits. You can use free apps to help you manage your money, create a budget, and invest for the future. MoneyTrack, for example, is a fast and easy way to track where your money’s going and how much you’re saving, without the hassle of complicated spreadsheets and piles of crumpled receipts. You can sync accounts to more than 15,000 financial institutions for a holistic understanding of your financial health.

The app helps you assess current debts (e.g., student debt or personal credit card debt) and confront outstanding payments. If you’re looking to improve your credit score quickly, this is a great place to begin. Rectify debts, tag transactions to better understand your spending habits, make informed decisions with a cash flow calendar, and track your financial goals more efficiently. 

3. Build a Line of Credit

Some young credit card users may assume that the most risk-averse strategy for improving credit is to avoid using credit cards altogether. But, as shown above, the truth is that 15 percent of your overall credit score is based on your history of responsible credit card usage. 

Those with limited credit histories should avoid regularly opening new accounts or closing existing ones so their credit history can accumulate over time. As you build your credit, continue to maintain best practices when it comes to paying bills on time and avoiding added interest and late fees.

4. Stay Well Below Your Card Limit (Credit Utilization Ratio)

The first credit card you get can feel like free money with no strings attached, but that is far from the case. Whereas regularly paying your credit card balance in full will boost your credit, routinely maxing out your card will have the adverse effect. 

You should always stay well below your card limit and maintain a low credit utilization ratio. Most investors suggest you keep your total usage at no more than 30 percent of your card’s limit. Card users also have the option to increase their credit limit to maintain a utilization of less than 30 percent. Enable balance alerts so you know when you’re close to reaching your limit.

5. Avoid “Hard” Credit Inquiries 

There are two kinds of credit inquiries. “Soft” inquiries are used to monitor credit, to allow an employer permission to check credit, or to allow credit card companies, landlords, and lenders to check credit. These inquiries are routine and do not affect your credit. 

“Hard” credit inquiries, by contrast, are used to complete applications for new credit cards, auto loans, or mortgages. Hard inquiries can affect your overall credit score and your eligibility when applying for a home loan, so be wary and conduct these types of inquiries sparingly.

6. Hire a Professional to Ensure the Best Experience

Even the most money-savvy among us often need a guiding hand when it comes to the home buying process. From building basic credit to applying for your first home and everywhere in between, it is normal to feel a bit overwhelmed. That’s where First State Community Bank steps in.


First State Community Bank offers personalized financial planning to guide you through every stage of your life. To learn how we can help you meet your financial goals, speak with one of our advisors today.

Download Guide: The Essential Guide for First-Time Home Owners

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