Improve Your Credit Score for Mortgage Approval

This article was published in partnership with StellarFi. StellarFi helps our community of home buyers easily build their credit score using the everyday bills – like utilities and subscription services – they already pay.

19 Percent Of Mortgage Applications Are Turned Down

Having your mortgage application denied because of a low credit score can greatly disappoint a first-time home buyer.

After all, you can’t improve your credit score by getting a mortgage co-signer or a cash gift for a downpayment. Raising your credit score takes time, so if your credit score is low and you want to buy a home, you need to follow a plan.

But first, recognize that having a mortgage turned down because of credit, while disappointing, is a common scenario. Government mortgage statistics show 19% of purchase mortgage applications were denied for credit reasons last year. And, many of those buyers will bounce back stronger because credit scores are a momentary snapshot – they’re far from permanent.

This article, written in partnership with StellarFi, will show you how to build your credit score quickly and put you in a position to get your mortgage application approved. Your credit score is within your control.
Let’s review what credit scores mean to mortgage lenders.

Your Credit Score Affects Your Mortgage Options

Credit scores help lenders predict whether you’ll pay your loan back on time.

Credit scores are measured on a scale of 300-850. The higher a home buyer’s credit score, the more likely it’s predicted that they will make on-time payments to their lender over the next 90 days.

Buyers with lower-end credit scores are predicted to be less likely to make on-time payments over the next 90 days, which results in mortgage default.

In general, lenders think that home buyers with credit scores over 740 are less likely to default on their loans and worry that buyers under 500 will be more likely to default.

This thinking applies to home buyers who make large down payments or low down payments, and across all government-backed mortgage types, including conventional loans, FHA loans, VA loans, and USDA loans.

No matter your credit score, though, there’s room to improve it by establishing a pattern of positive financial behavior.

Two-thirds of your credit score is making on-time payments and keeping your balances in check. Another twenty percent is the types of credit you carry and for how long. You can target these areas to lift your score. Plenty of people do it.

With credit education and tools, anyone can improve their credit score.

Below, we provide a defined strategy for how to improve your credit score with consistent and focused action.

5 Steps To A Higher Credit Score

To improve your credit score, focus on these five steps.

Make On-Time Payments

Nothing does more to help your credit score than on-time payments for your credit cards, student loans, car loans, utility bills, and rent. If you’re the forgetful type, set up automatic payments and direct debits – whatever you need – to ensure you pay your bills on time.

Bonus tip: If you know you’ll be late on a payment, call your creditor before missing your due date. Often, they’ll offer you an extended grace period to make your payment instead of marking you late.

Keep Your Balances Balanced

Keep your credit cards away from their limits and pay down balances to one-third of their available credit line, where possible. It’s better to distribute large balances among multiple credit cards than to load up the balance on one credit card.

Bonus tip: Become an authorized user on a trusted relative’s credit card. You can benefit from their high credit limit and low utilization rate. Use this strategy cautiously, however, as their negative credit activity will impact you both.

Challenge Errors

Errors on your credit report can unjustly lower your score. Regularly review your credit report for inaccuracies and dispute them with the credit bureaus. This process can help correct mistakes and improve your score.

Bonus tip: When you find an error on your credit report, don’t just dispute it with the credit bureau. Also, contact the creditor who reported the information, like a bank or credit card company. Taking a dual approach can expedite the credit correction process.

Let Time Do Its Job

After implementing these changes, waiting a few months before reapplying for a mortgage is wise. This period allows the positive changes to reflect back in your credit score.

Bonus tip: Use your waiting period to prepare for future credit opportunities. Make a sustainable budget that includes timely bill payments, simple debt reduction, and saving for a low-downpayment mortgage.

Get StellarFi To Supercharge Your Efforts

StellarFi is a credit building tool that takes your routine bill payments – like utilities, gym membership, and streaming services – and reports them to the three major credit bureaus as on-time payments, ultimately impacting all five components that make up your credit score.

Each on-time payment can help grow your credit and bring you closer to your upcoming mortgage approval.

Bonus tip: The more bills you pay through StellarFi, the higher the impact on your score. See how much StellarFi can improve your score.