How to Protect Your Credit Before Buying a House

Buying a house is likely the biggest financial move you’ll ever make. But many first-time home buyers don’t realize that the financial decisions you make in the months before you apply for a mortgage are what can make or break the deal.

After all, your credit score isn’t just a random number. It’s the number that determines whether your mortgage application is approved, what interest rate you’re offered, and ultimately how much the home will cost you over the course of the loan.

The difference between a 680 and a 760 credit score might only be 80 points on paper, but it could mean thousands of dollars in extra interest as you pay off your mortgage. That extra money could’ve been used for family vacations. A college fund. A new car.

So, before you start exploring open houses or talking to a lender, it’s worth spending time to protect and strengthen your credit. Here’s a look at how to do it, with the expertise of Amplify’s own Mortgage Loan Originator, Luis Versalles.

Read Every Line of Your Credit Report

You can pull your report from all three major credit bureaus—Equifax, Experian, and TransUnion—at AnnualCreditReport.com, which is the only site federally authorized to provide free credit reports. You can review your credit report for free once a week, so there’s no excuse not to look.

Versalles says that when you do review your credit report, you should look for:

• Accounts that aren’t yours: If you see a credit card, loan, or collection account you don’t recognize, that’s a red flag. 
• Incorrect late payments: Your payment history makes up 35% of your FICO score, so even one incorrectly reported late payment can drag your score down significantly.
• Outdated negative information: Most negative items, like late payments or collections, must be removed from your credit report after seven years. If any older items are still showing up, you can and should dispute them.
• Wrong account balances or credit limits: If your balance is higher than it should be or your credit limit is lower, that can negatively impact your credit utilization ratio—which we cover next.

“If you find errors on your credit report, dispute it in writing with the credit bureau and the creditor that reported the inaccurate information,” Versalles says. “The bureau then has 30 days to investigate and resolve the issue. And make sure to keep copies of all correspondence!”

Keep Your Credit Utilization Below 10%

Your credit utilization is the percentage of available credit you’re currently using, and this figure accounts for approximately 30% of your credit score.

“While most financial experts advise keeping this ratio under 30%, if you’re planning to apply for a mortgage, it’s a good idea to aim even lower,” Versalles explains. “Lenders love to see utilization under 10%.”

Not sure what that means? Here’s what it looks like in practice. Let’s say your total credit limit across all your credit cards is $20,000. If you want to keep your utilization at 10% or below, make sure your balances are $2,000 or less when your mortgage application is under evaluation. 

If you’re not quite to the 10% goal, here are a few practical steps to take:

• Pay down your balances aggressively: Starting 3 to 6 months before you apply, funnel any extra cash toward paying down credit card balances rather than other financial goals. Lowering your credit utilization ratio often results in dramatic results, quickly.
• Don’t close old accounts: If you close a credit card account, it reduces your available credit. That automatically raises your utilization percentage. An old card you never use can help you keep your ratio low, so leave it open.
• Time your application strategically: Credit card companies report balances to the bureaus on a specific day each month, which is usually the statement closing date. If you pay down a card before that reporting date, the lower balance is what gets reported. It’s a simple trick that can make a meaningful difference.

“If your utilization is higher than you’d like, don’t panic,” Versalles says. “The earlier you start paying down those balances, the more time you have to strengthen your credit profile.”

Don’t Open Any New Accounts

“The moment you decide you seriously want to buy a home, stop applying for new credit,” says Versalles. “In other words, no new credit cards, no car financing, no “apply now for 18 months same as cash” at the furniture store.”

Every time you apply for credit, the lender makes a hard inquiry on your credit report. Those hard inquiries typically knock a few points off your score and also stay on your report for two years. If a mortgage underwriter sees multiple recent inquiries, it raises questions about your financial stability, even if you were just trying to get a store discount.

A good rule of thumb: don’t apply for any new credit for at least 6 months before your mortgage application. 

Freeze Your Credit

Versalles says that protecting your credit before buying a house is often overlooked.

“A lot of people are focused on boosting their credit score before buying a house, which is important,” he says. “But they fail to take measures to also protect their credit.”

He goes on to explain that a case of identity theft can be a major setback in the homebuying process.

“Protecting your credit is crucial in the months leading up to your purchase,” he says. “You’ll be moving money around. You might be using real estate apps and websites and sharing financial information with multiple parties. Your exposure to identity theft is higher. And if someone did happen to steal your identity, it could be detrimental to your credit score and be a major roadblock to buying a home.”

Luckily, there are measures you can take to protect your identity and credit.

A credit freeze, also known as a security freeze, locks your credit files at all three major bureaus so no new lender can access them. So, even if a thief gets hold of your Social Security number, they can’t open any new accounts in your name. 

Placing a freeze is simple and free. You can do it online on each bureau’s website in a few minutes. When you’re ready to apply for a mortgage, you can temporarily lift that freeze—again, free and usually instant—so your lender can pull your credit. Then, freeze it again afterward.

Set Up a Fraud Alert

If you don’t feel comfortable with freezing your credit entirely, a fraud alert is a good option. A fraud alert notifies lenders that they should take extra steps to verify your identity before extending a line of credit in your name.

There are two types of alerts:

• Initial fraud alert: Lasts one year and is free to place. This option is great if you’re concerned about identity theft but haven’t been able to confirm fraud.
• Extended fraud alert: This lasts seven years and is available if you’ve already been the victim of identity theft.

You only need to place an alert at one bureau, and they are required to notify the other two. 

The Bottom Line

Protecting your credit before buying a house isn’t complicated, but it does require discipline and intention. It’s best to start early. Pull your credit reports and fix any errors. Pay down outstanding balances. Don’t open any new accounts. Freeze your credit and put fraud alerts in place. Then continue to monitor everything up until you get your keys. Versalles reminds homebuyers that their credit score is their leverage in the mortgage process. “The stronger the score, the better the terms you’ll be offered, and the more money you’ll save over the life of the loan,” he says. “If you put in the work now, your future self will thank you every single month for the next 30 years.”