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Your credit score is one of the most important parts of obtaining a mortgage loan. Your credit score tells lenders what your history is regarding how you manage your finances.  A credit score is a three-digit number designed to represent the likelihood you will pay your bills on time. 

While I do not work in the areas of "credit repair", here is some basic information:

A credit score can significantly affect your financial life. It plays a key role in a lender's decision to offer you credit. People with credit scores below 640, for example, are generally considered subprime borrowers. Lending institutions often charge interest on subprime mortgages at a rate higher than a conventional mortgage in order to compensate themselves for carrying more risk. They may also require a shorter repayment term or a co-signer for borrowers with a low credit score.

Conversely, a credit score of 700 or above is generally considered good and may result in a borrower receiving a lower interest rate, which results in their paying less money in interest over the life of the loan. Scores greater than 800 are considered excellent. While every creditor defines its own ranges for credit scores, this FICO score range is often used:

• Excellent: 800 to 850
• Very Good: 740 to 799
• Good: 670 to 739
• Fair: 580 to 669
• Poor: 300 to 579

 
There are companies that tout their ability to raise your credit score. Be very wary of this kind of help. There is hardly anything they can do for you that you can't do for yourself. 

Pay your bills on time. 

Pay at least the minimum amount due on each account by its due date. Enough said.

Stop applying for credit. 

Every time you officially apply for credit, whether it's for a new car, credit card, or mortgage, the lender will do a "Hard" pull on your credit. This will lower your score by a few points each time it happens. If you apply for a few credit cards during the same month you could easily see your score drop 20-30 points. Don't worry, as long as you manage them responsibly your score will trickle back up. You may be wondering what a "soft" pull is on your credit. 

A soft inquiry, sometimes known as a soft credit check or soft credit pull, happens when you or someone you authorize (like a potential employer) checks your credit report. Soft pulls can also happen when a company such as a credit card issuer or mortgage lender checks your credit to preapprove you for an offer. Soft inquiries don't impact your credit scores because they aren't attached to a specific application for credit.

Many people have been ready to close on their mortgage loan, just days away from moving into their new home, only to lose their loan because they bought a new car, jet-ski, or something else on credit. Wait until you have your new home before you open any new accounts.

Pay attention to your average age of credit. 

Having a number of long-term credit accounts looks much better to lenders than a number of short-term accounts.  Whether you’ve had credit for six months or 20 years will make a difference in your credit score.A long track record without any major slip-ups suggests that your credit behavior will be similar in the future — and lenders and credit card issuers like that

Let's say you have one credit card and have had it for 10 years. The average age of your accounts is 10 years. If you get a new credit card, your new average age is 5 years. If you opened 2 hew credit cards, your new average would be 3 years and 4 months. Do not open up new accounts that are not absolutely needed. 

Keep your credit utilization down. 

Credit utilization is the amount of your available credit you are using. For instance, if you have a total (all cards combined) credit card limit of $50,000 and you owe $40,000, your credit utilization is at 80%. This is a very, very bad score. You need to pay off your debts and get your credit utilization below 10%, ideally below 5% before applying for a mortgage. Of course, there are exceptions - perhaps you have a large credit debt that is interest-free for the next 24 months - MLOs, Mortgage Brokers, and Mortgage Underwriters are not unreasonable people. Just have your debt organized and paid down. 

Generally speaking, you should not be living on credit. Live within your means and ONLY use credit for high-cost items, such as a home, car, or medical expenses. 

Collections

If you have any accounts in collection, you need to take care of these. Accounts in collection make you appear untrustworthy. Would you give a loan to someone who never pays back the money he borrows?

Let's say your account has already gone to collection - it's not the end of the world. You can negotiate with the lender as to how they reference the debt in your credit report. Be sure to get everything in writing. And worst-case scenario, let's say they refuse to list the account as "paid as agreed" - it's still not the end of the world. You still paid them, and that counts for a lot. Seeing that you paid off your obligation, even though it was late, still means something.

Show that you can save money.

Let's say you plan to buy a house next year - start building your cash reserves as quickly as possible. Have a transfer or direct deposit go into an account and just forget about it. This may end up being part of your down payment, but you are still often required to have a certain amount of cash reserves.

Start paying attention to your credit score.

Check it at least weekly. There are free apps out there, such as CreditKarma that give you a credit score for free and shows you why your score went up (or down). 

Many banks or credit card companies also offer free access to your credit score. 

Start doing these things now, no matter when you're going to buy a house. Having a good credit score has other effects, like saving you money on a car loan or guaranteeing the ability to get credit should an emergency happen to you.

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