How to Raise Your Credit Score to Prepare for a Mortgage Loan

When you apply for a mortgage, lenders will look at your credit score to determine what kind of terms and interest rate to give you on the loan. Your credit score is a three-digit number from 300 to 850; the higher the score, the better the deal you will get on your loan. Most lenders consider a score of 700 or above to be good, but if your score is 600 or lower, you probably will have to pay higher rates, if you get the loan at all. If you are thinking about getting a mortgage, you should do all you can to improve your credit score.

Instructions

1

Get copies of your credit score and your most recent credit reports; your credit score is based on these reports. You can get a free copy of your credit report from all three credit reporting bureaus--TransUnion, Equifax and Experian--at www.annualcreditreport.com. You will have to pay a small fee to get your credit score.

2

Review your credit reports and look for the following negative aspects: charged-off accounts, liens, judgments, over-limit cards, delinquent accounts, bankruptcies, foreclosures, short sales and high-limit credit cards.

3

First, deal with public records, which include judgments, liens, collections and charge-offs. Most of these accounts have been abandoned by creditors or sold to a collection agency, and these are the most damaging to your credit. Contact the holders of these accounts to arrange for a payment plan or pay them in full.

4

Concentrate next on delinquent accounts. Any account that is more than 30 days late will create a negative mark on your credit. Bringing these accounts up to date will have an immediate effect on your credit score.

5

Pay down any revolving account that is using more than 50 percent of the available credit. For example, if you have a credit card with a $4,000 limit and a $3,000 balance, pay this down by at least $1,000. Your credit score begins to fall when you cross this 50 percent threshold on any account.

6

Pay off the accounts with the highest interest rates. If you are under a time-crunch, liquidate other assets to pay off accounts quickly. If you need to take a long-term strategy, track your expenses for 30 days. Look for areas to cut (like entertainment, eating out and luxuries). Redesign your budget to reduce your debt drastically.