Why Can It Be Beneficial to Increase Your Credit Score Before Buying a House?

How Credit Scores Impact Home Loans

Lenders use your credit score to determine how risky it is to lend to you, with anything above a 720 generally being the lowest risk, and anything below 620 being the highest risk. A higher score means lower risk, which translates to better interest rates, better loan terms, and more flexibility in the homebuying process.

Even a small increase in your credit score could mean qualifying for a better rate, potentially saving you tens of thousands of dollars in interest over the life of your loan.

Here’s a comparison showing how much extra interest you could pay over the life of a 30-year, $375,000 mortgage depending on your credit score:

Table 1: Why Can It Be Beneficial to Increase Your Credit Score Before Buying a House?

Credit Score Range	Extra Interest Paid  (Compared to 720+)
700 – 719	$13,502.75
660 – 699	$45,330.55
620 – 659	$100,894.69
Below 620	$162,425.77

These numbers are based on average 30-year fixed rates as of July 13, 2025. 

As you   see, even moving from the 620s to the high 600s can make a meaningful difference. And breaking past 720 can result in significant long-term savings.

How to Improve Your Credit Score Before Applying

If your score is under 720, there are several steps you can take to boost it before applying for a mortgage. (And be sure join the 7 Steps to a 720 Credit Score, our free credit-education course.) Let’s take a look at five of them. 

1. Dispute Credit Report Errors

Start by reviewing your credit reports for inaccuracies. Look for duplicate accounts, late payments that aren’t yours, or accounts that were settled but are marked as open. If you’ve been through a bankruptcy, it’s especially important to verify that discharged accounts are properly reported. Our team estimates that about 40% of people post-bankruptcy have high-priority errors, and around 10% are legally actionable under the Fair Credit Reporting Act.

If you have been through a bankruptcy, enroll in the Credit Rebuilder Program for a free review of your credit report.

2. Keep Credit Utilization Low

Your credit utilization ratio compares how much credit you’re using to your total available credit. For example, if you have a $5,000 limit and your balance is $2,500, your utilization is 50%. Ideally, keep this ratio under 30% … and under 10% if you want the biggest boost.

3. Open Three Credit Cards if You Have Been Through a Financial Meltdown

If you have been through some sort of a financial meltdown, the best way to show creditworthiness is to establish new, positive accounts. That means opening three credit cards in your name and using them responsibly. Why? Credit-reporting bureaus place more emphasis on new accounts and new behavior than on old accounts. We always liken it to a GPA: If you have bad grades your freshman year, but you start getting a bunch of A’s, your GPA will start to grow. And colleges will look at your transcripts and see that while you struggled in the past, you’ve turned over a new leaf. 

4. Make On-Time Payments

Nothing matters more than a consistent history of on-time payments. One late payment can tank your score. Automate payments or set reminders to stay on track.

5. Add an Installment Account

Installment accounts, like car loans or credit builder loans, add another layer of positive history. If you want to speed up the process, our Credit Rebuilder Program reports small monthly payments to all three credit bureaus and can act like an installment account.

Watch & Learn: The Credit Rebuilder Program

What NOT to Do Before Buying a House

Here’s a warning: Don’t make major purchases within six months of buying a home. New debt increases your debt-to-income ratio and can trigger a hard inquiry, both of which can lower your credit score. Buying a car, financing furniture, or opening new credit cards during this time could jeopardize your mortgage approval.

Credit Score Isn’t Everything

While it can be beneficial to increase your credit score before buying a house, your credit score is not the only thing lenders evaluate. Here’s what else matters:

• Income Stability: Lenders want to see consistent, reliable income. Job changes or gaps in employment can raise red flags.
• Debt-to-Income Ratio (DTI): This ratio compares your monthly debts to your monthly income. Lower DTI is better.
• Down Payment Amount: A larger down payment can make up for a lower credit score or high DTI.
• Cash Reserves: Lenders may want to see that you have savings to cover a few months of mortgage payments.
• Recent Payment History: Even with a low score, no late payments in the last 12 months can go a long way.

Different Lenders = Different Rules 

One of the most important things to understand when applying for a mortgage is that there is no universal rulebook. Each loan program, whether it’s FHA, VA, USDA, or conventional, comes with its own guidelines. And beyond that, individual lenders have their own overlays, meaning they may impose stricter requirements than the program itself. For example, FHA technically allows scores as low as 580, but many lenders won’t go below 620. Some lenders might require more documentation, higher reserves, or even deny an application due to a past credit issue that another lender would overlook.

This is why it’s so important to work with a knowledgeable mortgage broker or lending advisor who can shop your file around and find the right fit. Especially if your score is below 700, finding a lender who sees the full picture—not just the number—can make or break your ability to buy a home.

Let’s break down some of the key loan types and what they generally require. (And be sure to read the article called “How Much of a Home Loan Can I Get With a 650 Credit Score?”)

The chart below illustrates why it can be beneficial to increase your credit score before buying a house, with higher credit scores opening up loan options. Sure, you don’t need a high score to buy a home, but you’ll save money and have more options available if you do! 

Table 2: Loan Types and Credit Scores Compared

	FHA Loan	VA Loan	USDA Loan	Conventional Loan
Minimum Credit Score	580	Typically 620	640–650	620
Down Payment	3.5%	None	None	5% to 20%
Common?	No. Primarily for first-time or low-income buyers.	No. For veterans and active-duty military.	No. Limited to those in rural areas with income caps.	Yes
Loan Amount Cap	~$498,257 (standard); up to $1,149,825 (high-cost areas)	No official cap with full entitlement	No set cap, but income and property restrictions apply	$806,500 (standard); up to $1,200,000 (high-cost areas)
Notes	Mortgage insurance required; less credit-sensitive	No mortgage insurance; for eligible service members	Rural-only; income limits; modest homes only	PMI required if <20% down; more credit-sensitive

It’s worth noting that conventional loans are the most commonly used type of mortgage in the U.S. That’s because they’re available to almost everyone who qualifies based on credit, income, and down payment, unlike FHA, VA, or USDA loans, which come with specific restrictions.

So why can it be beneficial to increase your credit score before buying a house? 

The numbers don’t lie: The difference between a good interest rate and a great one can mean saving tens or even hundreds of thousands of dollars over time. 

That said, while your score plays a big role, it’s just one part of the full financial picture lenders consider.

By taking a few focused steps, such as disputing errors, managing credit use, making on-time payments, and building new credit … you can shift your credit score into a higher tier and expand your loan options. More importantly, you position yourself to walk into homeownership with confidence, flexibility, and a stronger financial foundation.

If you’re planning to buy in the next 6 to 12 months, start today by joining 7 Steps to a 720 Credit Score for free. A higher score could mean a lower rate, a better loan, and a smoother path to the home you want.