How to Improve Your Credit Score Before Applying for a Mobile Home Loan
The steps that raise a credit score are few, and none of them is a trick: correct errors, get current, lower card balances, pay on time, stop applying for new credit, and leave older accounts alone. What changes the result is the order, because some steps show on your report within a month or two and others take much longer. The seven steps below are in that order, each with what to do and what to avoid.
Two cautions before you start. How far a score moves depends on what is in your file, so nobody can promise a number. And a lender reads the whole report, not only the score: preparing your credit for a manufactured home loan application explains what is on the report and lays the work out month by month.
What a credit score is built from
The Consumer Financial Protection Bureau lists the factors scoring models typically consider: your bill-paying history, your current unpaid debt, the number and type of accounts you have, how long you have had them, how much of your available credit you are using, new applications for credit, and whether a debt has gone to collection, foreclosure or bankruptcy.
Scoring companies weight those factors differently, and you have more than one score. Treat any exact breakdown you see online as one company’s model. Each step below works on one of the factors.
Seven steps and when each one tends to show
| Step | Works on | When it tends to show |
|---|---|---|
| 1. Correct errors | Whatever the error touches | After the dispute is investigated, generally about a month |
| 2. Bring past-due accounts current | Payment history | Stops new late marks at once; old ones stay |
| 3. Pay down card balances | Credit in use | After the card’s next monthly report |
| 4. Pay every bill on time | Payment history | Builds month by month |
| 5. Stop applying for new credit | New applications | The effect of an inquiry fades with time |
| 6. Keep older accounts open | Length of history, credit in use | No gain; it avoids a loss |
| 7. Get help with debt you cannot manage | Unpaid debt | Depends on the plan |
Steps that can show up within a statement cycle or two
Start here. These three change what the report says about you today, so they are the ones worth doing first if you plan to apply in the next few months.
Correct errors on your reports
Get your reports from Equifax, Experian and TransUnion at annualcreditreport.com. They are free, and checking your own report does not affect your scores. An account that is not yours, an on-time payment marked late or a paid debt still showing a balance is worth disputing. The CFPB explains how to dispute an error.
- Do: dispute in writing with the credit bureau and with the company that reported the item, attach copies of your proof, and keep everything you send.
- Avoid: disputing items that are accurate. An accurate item stays on the report, and the dispute uses up time you need for the real errors.
Bring past-due accounts current
A late payment that has already been reported stays on the report. What you control is whether another one is added next month. An account that is current today reads very differently from one that is still behind.
- Do: catch up the most recent late account first, and ask the creditor to confirm in writing once it is current.
- Avoid: skipping one bill to pay another. Call the creditor and ask about a payment arrangement before the due date passes.
Pay down card balances
Scoring models look at how much of your available credit you are using. The CFPB’s advice on keeping a good score is plain: do not get close to your credit limit. Card issuers usually report a balance about once a month, so a payment made before the statement date is the one that shows.
- Do: pay down the cards closest to their limits first, then keep new charges low until your loan closes.
- Avoid: closing some cards and moving the balances onto one. The CFPB notes this may hurt a score when it leaves you using a high share of your total limit.
Habits that take longer to show
The next three do not produce a visible change in a month. They protect what the first three gained.
Pay every bill on time
Payment history is built one month at a time, and nothing substitutes for it. Each on-time month adds to the record; each late one sets it back and stays visible for years.
- Do: set up automatic payments or calendar reminders for at least the minimum on every account, including the ones with small balances.
- Avoid: assuming a bill that is not a loan cannot hurt you. An unpaid utility or phone bill can be sent to collection and then appear on your report.
Stop applying for new credit
When you apply for credit, the lender’s check is recorded as a hard inquiry. Scoring models look at how recently and how often you have applied, and a lender reading your report will ask whether a new account means a new monthly payment.
- Do: hold off on new cards, store financing and vehicle loans from now until your home loan closes.
- Avoid: opening an account to improve your “credit mix”. It adds an inquiry, a new account and a new payment in exactly the months when a lender is counting your monthly debts against your income.
Keep older accounts open
The age of your accounts is one of the factors, and an open card with no balance adds to your available credit. Closing it helps nothing and can make the balances on your other cards look larger by comparison.
- Do: keep your oldest accounts open, use them lightly, and check the statements for charges you do not recognize.
- Avoid: tidying up by closing cards in the months before you apply.
If the debt is more than you can manage
Some balances cannot be paid down on a schedule you can keep. A credit counseling organization can review your budget and may set up a debt management plan. The CFPB explains what credit counseling is and how to choose a counselor; most of these organizations are non-profit.
- Do: ask how a plan would appear on your credit report, and whether it closes your cards, before you enroll.
- Avoid: any company that wants payment before it has done anything, or that promises to delete accurate information. The Federal Trade Commission is clear that no one can legally remove accurate, current information from a credit report.
If the problem is a collection, a charge-off or a past bankruptcy, the steps above still apply, but the application needs more than a checklist. See how to prepare an application when your credit has problems.
The checklist to print
Print this page or copy the list, and write the date beside each line as you finish it. The dates are useful later if a lender asks when an account was brought current or a dispute was filed.
For the document side of an application, Santiago Financial, Inc. keeps a loan checklist and a tutorial on calculating your debt ratio on the printable forms page. Credit requirements vary by program and investor, so once the list above is done, ask what applies to your scenario.
