What lenders look for when you explore for a mortgage
When you explore for a mortgage, the lender pulls your credit report and credit score. They use these to decide whether to lend you money and what interest rate to charge. A higher credit score usually means a lower interest rate, which saves you thousands of dollars over the life of the loan.
Most mortgage lenders want to see a credit score of at least 620, though many prefer 640 or higher. They also look at your payment history — whether you paid bills on time — and how much debt you currently carry compared to your income. A single late payment from years ago will hurt less than recent ones. Collections accounts, foreclosures, and bankruptcies stay on your report for seven to ten years but damage your score less as time passes.
The lender also checks your debt-to-income ratio: the total of your monthly debt payments divided by your gross monthly income. Most want this ratio below 43 percent, though some go as high as 50 percent. This means if you earn $5,000 a month, your total monthly debt payments should not exceed about $2,150.
Key Takeaways
- Mortgage lenders typically require a credit score of at least 620, though 640 or higher usually means better interest rates.
- Paying bills on time for the next several months will raise your score faster than any other single action.
- Paying down existing debt lowers your debt-to-income ratio and improves your score by reducing how much credit you are using.
- Errors on your credit report can be disputed directly with the credit bureau, and removing them may raise your score by 50 to 100 points or more.
- Building a history of on-time payments takes time — most lenders want to see at least two years of clean payment history before approving a mortgage.
Check your credit report for errors before you start
Before you make any changes, get a copy of your credit report from all three bureaus: Equifax, Experian, and TransUnion. You can request one free copy per bureau per year at annualcreditreport.com, which is the official government site. Do not use other sites that claim to be free — many charge a fee or sign you up for a subscription.
Read each report carefully. Look for accounts you do not recognize, late payments that were actually on time, or duplicate entries. These errors are more common than most people realize. If you find one, contact the bureau in writing (email or certified mail) and describe the error. Include a copy of proof — a bank statement showing you paid on time, a letter from the creditor, or a screenshot of your account. The bureau must investigate within 30 days and remove the error if it cannot verify it.
Removing a false late payment or a duplicate account can raise your score by 50 to 100 points or more, depending on how recent the error is. This is free and takes no longer than fixing the error yourself, so it is worth doing before you spend months trying to raise your score through other means.
Pay every bill on time, starting now
On-time payment history is the single largest factor in your credit score — it accounts for 35 percent of the total. If you have missed payments in the past, the damage fades over time, but only if you stop missing payments now. One late payment from two years ago hurts much less than one from two months ago.
Set up automatic payments for at least the minimum amount due on every credit card, loan, and bill. Pay on the due date or a few days early — lenders report late payments to the bureaus only if you are 30 days past due, but paying early removes the risk of a missed payment entirely. If you have trouble remembering, use your bank's bill-pay feature or set a phone reminder for a week before each due date.
If you have missed payments in the past, bring all accounts current before you explore for a mortgage. A lender will see recent late payments as a sign you cannot manage debt, even if you have paid on time for the last few months. Most lenders want to see at least two years of clean payment history — no late payments at all — before they will approve a mortgage.
Pay down credit card balances to lower your debt-to-income ratio
Your debt-to-income ratio is the total of your monthly debt payments divided by your gross monthly income. Mortgage lenders use this to decide how much house you can afford. The lower your ratio, the more mortgage you can may have access to for and the better your interest rate.
Credit card balances are usually the fastest debt to pay down because they are often smaller than car loans or student loans. Paying down a credit card from $5,000 to $2,000 when ready lowers your monthly minimum payment, which lowers your debt-to-income ratio. This also raises your credit score because it reduces your credit utilization — the amount of available credit you are actually using. Most scoring models reward you for using less than 30 percent of your available credit.
If you have multiple credit cards, focus on the ones with the highest interest rates first — this saves you money in interest charges while you are paying them down. Once you have paid a card to zero, do not close the account. Closing it removes available credit from your total, which actually hurts your score. Instead, leave it open and unused.
Do not explore for new credit while you are rebuilding
Every time you explore for a credit card, loan, or line of credit, the lender makes a hard inquiry into your credit report. This inquiry lowers your score by a few points. More importantly, it signals to future lenders that you are taking on new debt, which makes you look riskier.
If you need to replace a car or make a large purchase before you buy a house, try to do it before you start rebuilding your credit, not during. If you must borrow, space out applications by at least six months so the inquiries age and matter less. Multiple inquiries within a short period can lower your score by 10 to 20 points.
The same applies to closing old accounts. Even if you have paid off an old credit card, keep it open. The age of your oldest account matters — lenders like to see a long history of credit use. Closing an old account shortens your average account age and can lower your score.
Understand how long rebuilding takes
How fast your score rises depends on what is hurting it. If your only problem is a few late payments from the last year, you might raise your score 50 to 100 points in three to six months of on-time payments. If you have a collection account, foreclosure, or bankruptcy, rebuilding takes longer — usually one to two years of clean payment history before a mortgage lender will consider you.
The older the negative mark, the less it hurts. A late payment from five years ago damages your score far less than one from five months ago. This means time itself is part of the solution — you cannot speed it up, but you can stop making it worse by paying on time from now on.
Most mortgage lenders want to see at least two years of clean payment history before they will approve you. Some require three years if you have a bankruptcy or foreclosure in your past. Plan your house purchase around this timeline rather than trying to rush it. A few extra months of on-time payments now will lower your interest rate by 0.5 to 1 percent, which saves you tens of thousands of dollars over 30 years.
Work with a mortgage broker to understand your options
Once you have raised your score and cleaned up your payment history, talk to a mortgage broker or lender before you start house hunting. They can tell you exactly what score and debt-to-income ratio they need, and whether any recent negative marks will disqualify you. Some lenders are stricter than others — one may require a 680 score while another will work with a 640.
A mortgage broker can also explain what documentation you will need. If you have had late payments, they may ask for a written explanation of what happened and proof that the situation has changed. If you are self-employed, they will need two years of tax returns. Knowing this in advance means you can gather documents while you are rebuilding, rather than scrambling at the last minute.
Do not explore for a mortgage until you are confident you will be approved. Each process triggers a hard inquiry that lowers your score. If you explore to five different lenders in one week, the damage is less severe — the bureaus count multiple inquiries of the same type within 45 days as a single inquiry. But if you explore to one lender, get rejected, and then explore to another three months later, each one counts separately.
Frequently Asked Questions
How much will my credit score go up if I pay off a credit card?
Paying off a credit card usually raises your score by 10 to 50 points within one to two months, depending on how high your balance was. The higher your balance was relative to your credit limit, the bigger the boost. Paying a card from $8,000 to $0 on a $10,000 limit will raise your score more than paying a card from $500 to $0 on the same limit.
Should I pay off old collections accounts before I explore for a mortgage?
Paying off a collection account does not remove it from your credit report, but it does change the status to "paid." Some lenders prefer to see paid collections rather than unpaid ones. However, paying a very old collection account can actually lower your score temporarily because it resets the age of the account. Ask your mortgage lender whether they prefer paid or unpaid collections before you pay anything.
Can I buy a house with a 620 credit score?
Yes, but you will pay a higher interest rate than someone with a 680 score. A 620 score might mean a 6.5 percent interest rate while a 680 score gets 6.0 percent. Over 30 years on a $300,000 mortgage, that 0.5 percent difference costs you about $50,000 in extra interest. Waiting a few months to raise your score usually saves far more money than buying when ready.
What if I have a bankruptcy on my credit report?
A bankruptcy stays on your report for seven to ten years depending on the type, but you can usually get a mortgage three to four years after the bankruptcy is discharged if you have paid all bills on time since then. Some lenders require longer — ask a mortgage broker what timeline they use. The key is demonstrating that you have learned from the bankruptcy and can manage debt responsibly now.
Does checking my own credit report hurt my score?
No. Checking your own credit report is a soft inquiry and does not lower your score. You can check it as often as you want at annualcreditreport.com without any penalty. Only hard inquiries from lenders or creditors lower your score.