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How to Clean Up Your Credit for a Mortgage?

Every year, millions of homes are purchased by Americans all across the country. While some may be able to afford to buy these homes straight up, most will require a mortgage to do so. These mortgages can be for hundreds of thousands of dollars and help more people become homeowners.

However, not all mortgages are created equal. In order to get the best rate and terms, you need to show you can handle debt well and have good credit. Poor credit can make mortgages much more expensive, if you can even get one in the first place.

Thankfully, if you are struggling with poor credit, there are some ways you can turn it around before getting a mortgage. This article is going to go over a few of them.

Check Out Your Credit Report

The first thing you should do is to get your hands on a copy of your credit report. This is a detailed list of all of your accounts and will give you an in-depth look at your credit history. This report can not only help you understand your credit better, but also allow you to check and make sure everything is correct.

Issues on credit reports are not uncommon, and can negatively impact your score when they shouldn’t. If you see an issue or something that appears wrong, be sure to report or dispute it. Also, if you see collections that are negatively impacting your credit score, you may be able to have the collections removed. These can often have a significant and quick impact on your credit score, and should not be ignored.

Pay Off Your Debts

One of the best ways to improve your credit is to pay off your debts. If you have too much debt and struggle to pay it off every month, your credit will suffer. If you have a lot of debt, some mortgage lenders will be unwilling to add any more debt to the pile. But if you can show you have been whittling down at your debts or eliminating, it can show lenders you are prepared and capable of dealing with debt.

While having some debt is often fine for mortgage lenders, if the amounts are high or they come from several different places, some might be worried. If you already allocate your money to six different debts every month, some lenders may be fearful that you won’t be able to keep up with a mortgage added on top of that.

Use Credit Responsively

How to Clean Up Your Credit for a Mortgage

Responsible use of credit cards and loans is one of the best ways to ensure your credit stays in a good place. If you aren’t spending responsibly, it can be easy to spend beyond your means and find yourself in debt that you can’t pay off on time, which will drag your credit score lower.

You need to prove to a mortgage lender that you are not a risk and that you can carry debt and pay it off on time and in full. The less risky a borrower you are (as indicated by your credit), the lower interest rate you will generally get.

You should also aim to keep your credit utilization rate low. If you use most of your available credit every month, many lenders may worry that you are spending irresponsibly and are at a higher risk of default and are simply relying too heavily on credit cards.

Before getting a mortgage, it is wise to get your credit in the best place possible. These tips will be able to help you clean up your credit report and score to give you a better chance of being approved for a mortgage.