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How to best prime your credit before applying for a mortgage

CNBC Select gets credit advice from a mortgage expert on what first-time future homeowners need to know to prepare before applying.

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.

The median credit score of successful mortgage applicants last year was 759, or "very good" on the FICO scale. Only 10% of mortgage borrowers had credit scores under 647, according to the Federal Reserve.

And while it's not the norm, borrowers with scores as low as 620 are getting approved for new mortgages, even amid the current economic downturn. Yet, having a healthy credit score still matters when applying for a mortgage as banks tighten their lending standards.

To increase your chance of securing a loan, pay attention to where your credit stands — and don't give up hope if it's low.

"There are many misconceptions that your credit has to be perfect to qualify for a mortgage," Montell Watson, a director at national retail mortgage lender Movement Mortgage, tells CNBC Select.

Watson says there are opportunities today for many different credit profiles to get approved for a home loan, but he wants to remind soon-to-be homebuyers that the lower your score, the more difficult it is to qualify. You also add, in most cases, the expense of higher interest.

Since Watson heads many of the company's homebuyer education initiatives, we asked him how borrowers can best prime their less-than-stellar credit before applying for their first mortgage.

Know what your credit history says

As you prepare to become a future homeowner, the first step in priming your credit is knowing what yours looks like. 

Start by visiting AnnualCreditReport.com for your free weekly credit report from each of the three main credit bureaus: Experian, Equifax and TransUnion. 

Information may vary between reports, but you can expect to find your personal information (name, birthday, social security number), your current and historical credit accounts (credit cards, mortgages, loans) from the past seven to 10 years, inquiries from when your credit was pulled and any public records like bankruptcies and foreclosures.

4 tips to prepare your credit

Once you know where your credit stands and you've checked your credit score, Watson recommends the below four crucial tips to make your credit score as high as possible before applying for a home loan:

  1. Pay all your current bills on time.
  2. Pay off as much debt as possible and keep your credit card balances low (your debt-to-income ratio will be a big factor in whether or not you get approved).
  3. Don't apply for new credit (especially right before you are applying for a mortgage since a hard inquiry will ding your credit score a few points temporarily).
  4. Don't close any current open credit lines (especially right before you apply).

And if your credit isn't yet where you want it, know that there are credit cards that can help you raise your score. Select reviewed the best credit cards that give people with fair or average credit better qualification chances, and our top picks included the Petal® 2 "Cash Back, No Fees" Visa® Credit Card for no fees*, the Capital One QuicksilverOne Cash Rewards Credit Card for cash back and the Capital One Platinum Credit Card for travel.

Bottom line

If you have fair or average credit, don't be discouraged from applying for a loan on your first home. With an improved credit score, you can increase your chances of qualifying and know that there are professionals, like loan officers, who can help guide you.

Don't miss: What credit score is required to buy a house?

Information about the Capital One QuicksilverOne Cash Rewards Credit Card and Capital One Platinum Credit Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.

Petal 2 Visa Credit Card issued by WebBank, Member FDIC.

*The regular APR variable for the Petal® 2 "Cash Back, No Fees" Visa® Credit Card currently range from 13.74% - 27.74%

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.