How to build good credit for a future mortgage

You plan on buying a house in the not-too-distant future. That big moment may arrive sometime in the next two to five years, but you need to start building good credit now if you want to obtain a good mortgage. 

What will loan officers, underwriters and other mortgage professionals look for in your credit score? Which actions can you take to ensure your credit report hits the right note? 

"Try to keep your credit card balance at 30 percent or lower."

Steps toward building good credit 
For the most part, mortgage professionals are going to pay extra attention to your credit history. Given that a mortgage is a long commitment, they want to make sure you've been paying the minimum balance on credit cards, auto loans and other debts on time and in-full every month. 

That's the first rule, and it's an easy one to follow: Make sure you stay on top of your credit bills. With this in mind, make sure your balances are low. Never max out your credit cards. Try to keep the balance at 30 percent or lower. Doing so informs mortgage professionals that you're a disciplined spender. 

According to, having a good credit mix is another necessity. Although it's only 10 percent of your traditional credit score, banks want to to see that you've been capable of handling different kinds of loans over extensive periods of time. So if you may need a new car, obtain an auto loan to diversify your credit portfolio.

Do mortgage professionals use different credit scores?
Banks, credit unions and other institutions providing home loans often reference mortgage credit scores. These ratings weigh certain factors differently to help mortgage professionals better assess the risks of lending to particular borrowers. Specifically, the score is designed to determine the risk of default on home loans. 

Why wouldn't a loan officer use the same credit score as the one you received from Experian, TransUnion or Equifax? 

Think of it this way: You may only make sporadic purchases with your credit card, buying a $1,000 computer in May while not purchasing anything at all in June. In contrast, if you have a mortgage to pay for, you're going to have to make payments every month. Not to mention, the property acts as collateral on your loan, which can affect the risks associated with the agreement as a whole. 

What will the underwriter review before approving your application? What will the underwriter review before approving your application?

What mortgage professionals look for 
Underwriters play a key part in the home loan application process in that they're the ones who choose to approve your loan. FreddieMac noted these professionals determine whether you'll repay the mortgage by assessing the following details

  • Credit delinquencies, collections or charge-offs
  • Repossessions of items you procured through leases, loans or some other type of credit
  • What kinds of credit accounts you have, as well as the usage and limits linked to each one
  • Bankruptcies, foreclosures, liens and any other judgments

In addition to these concerns, underwriters also examine your housing expense-to-income ratio - a calculation of how much of your income you spend on utilities, rent, maintenance and other home-related costs. Some underwriters may use alternative credit reports when analyzing this detail, as nontraditional credit scores factor in a person's monthly bill payment habits. 

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