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How to Get Your Credit Report Ready for a Mortgage Application

When you apply for a mortgage, every point in your credit score matters. With DC real estate prices, even a small increase in your interest rate can cost you tens or hundreds of thousands of dollars. Here’s what you need to do to polish your credit report to get the best score and interest rate possible.

Review Your Credit Reports as Soon as Possible

Review your credit reports well in advance of when you plan to apply for a mortgage so you have time to fix any errors. Common errors include the credit bureau mixing up consumers with similar names or a credit card fraudulently opened in your name due to identity theft.

Federal law entitles you to obtain a free copy of your credit report from each of the three major credit bureaus every year. If you spot an error, the Fair Credit Reporting Act allows you to file a dispute directly with the credit bureau.

Consider Commercial Credit Score or Credit Reporting Services

While you don’t need to pay to see your credit report, premium services can give you additional information. Features you may want to look for include the following:

  • A breakdown of your credit score factors to help you see where you can most easily improve your score
  • Credit score simulators that estimate how your credit score will change if you take steps such as paying down your credit cards
  • Daily or weekly credit score updates to help you track your progress

These services carry a monthly fee, but remember that you’re investing in potentially saving thousands of dollars by optimizing your credit score.

Watch Your Credit Card Spending

One of the biggest factors in your credit score is how much of your credit card limits you’re using. Credit card usage makes up 30 percent of a FICO score, and VantageScore calls it “highly influential.”

Most people think paying credit cards in full every month is ideal, and in normal circumstances that’s good enough. However, to maximize your credit score, you want your credit card statement balance to be no more than 30 percent of your credit limit. If you go over that threshold, even if you pay in full, your credit score will drop.

On the reverse side, don’t stop using your credit cards altogether. Zero percent usage is considered risky and lowers your score because you’re not showing a pattern of using credit responsibly. At a minimum, make a couple of charges each month and pay the bill in full when you get your statement.

Put Other Credit Moves on Hold

When you’re buying a new home, you may be tempted to open up a home improvement store credit card or buy a new SUV to help with the move. Any new credit applications or accounts will lower your credit score.

Even opening a new bank account or changing cell phone providers can result in a credit inquiry that lowers your score. Except for emergencies, freeze your finances until after your mortgage is approved and you close on your home.

Try to Undo Past Mistakes

One final way to boost your credit score is to try to get accurate negative information removed from your credit report.

For late payments, you can try a goodwill letter that asks the lender to forgive a one-time mistake based on your overall record of responsible payments. For charged-off or delinquent accounts, you can see if the lender will agree to a pay-for-delete arrangement where you pay off the balance in exchange for the lender removing the negative information. If your lender agrees, you could see a big jump in your credit score.

To learn more about what to do to get ready for a mortgage application, talk to one of our DC real estate agents.