Your credit is only one part of a mortgage application, but it can affect your loan options and the interest rate you are offered. The best time to review it is before you fall in love with a house.
You do not need to diagnose everything yourself. A reputable lender or HUD-approved housing counselor can help you understand what matters for your situation.
Check your reports early
Review your credit reports for accounts you do not recognize, incorrect balances, duplicate debts, and outdated personal information. Checking your own credit does not hurt your credit scores.
You can request your reports through AnnualCreditReport.com, the federally authorized source for free credit reports. If you find an error, begin the dispute process early because corrections can take time.
Pay every bill on time
Payment history is a major factor in FICO Scores. Set reminders or automatic payments for at least the minimum due so a missed date does not create a new problem while you are preparing to buy.
Reduce credit-card balances when you can
Credit scoring models consider how much of your available revolving credit you are using. Paying down balances may help your profile and can also reduce the monthly obligations a lender must consider.
Do not move money or close accounts based on a general rule without asking your lender how the change could affect your application.
Avoid new debt before closing
A new vehicle loan, credit card, furniture financing plan, or large card purchase can change your credit and debt-to-income picture. That matters even after preapproval, because lenders may review your finances again before closing.
When in doubt, ask your loan officer before opening an account or making a major purchase.
Keep your cash easy to document
Mortgage underwriting often requires bank statements and explanations for large deposits. Keep records and talk with your lender before moving large amounts between accounts, receiving gift funds, or depositing cash that may be difficult to document.
Do not rely on a single score from an app
Consumers can have several credit scores, and mortgage lenders may use versions that differ from the score displayed by a bank or monitoring app. Use consumer scores as a general guide, not a promise of loan approval or rate.
Build a plan with the right professionals
A lender can explain available loan programs and what documentation you will need. A HUD-approved housing counselor can also provide independent guidance, especially if you need time to improve your credit or organize your finances.
Once you understand your financing range, I can help you connect that budget to actual Houston neighborhoods, property taxes, insurance considerations, and the homes available in your target areas.
This article is general information, not credit, lending, legal, or financial advice. Loan requirements vary by borrower and program.
Originally published on HAR.com on May 10, 2016, with related material published July 28, 2014. Refreshed using current guidance from the Consumer Financial Protection Bureau and FICO.