What lenders actually look at when you apply for a mortgage
Mortgage lenders pull your credit report and credit score, then look at three things: whether you pay bills on time, how much debt you already carry, and how long you have been using credit. A score above 620 opens some doors; above 740 opens most of them. But the score alone does not tell the whole story. Lenders also read the report itself — they want to see that recent problems are behind you, not ongoing.
The report shows every account you have opened, every late payment, every collection, and every hard inquiry into your credit. A single missed payment from two years ago hurts less than one from two months ago. A collection account that you paid off looks better than one still unpaid. Lenders use this timeline to decide whether you are becoming more responsible or less.
Down payment size and income matter too, but credit is the first gate. If your score is below 620 or your report shows recent damage, most conventional lenders will decline you before they even look at your income. Some lenders will work with lower scores, but the interest rate climbs sharply — sometimes by 2 to 3 percentage points, which costs tens of thousands of dollars over the life of the loan.
Key Takeaways
- Lenders look at your credit score, payment history, and debt-to-income ratio; a score of 620 or higher opens options, but 740 or higher gets you the best rates.
- Recent late payments and unpaid collections hurt more than older ones, so the most recent 12 months of your report matter most.
- Paying down existing debt lowers your debt-to-income ratio and can raise your score by 50 to 100 points in a few months.
- Disputing errors on your credit report is free and can remove inaccurate late payments or accounts that are not yours.
- Building a track record of on-time payments takes time, but even three to six months of clean payment history can move your score upward.
Paying down debt to lower your debt-to-income ratio
Your debt-to-income ratio is the total of all your monthly debt payments divided by your gross monthly income. Most lenders want this number below 43 percent, though some will go to 50 percent if your credit score is strong. If you earn $5,000 a month and owe $2,000 a month in car loans, credit cards, and student loans, your ratio is 40 percent — close to the ceiling.
Paying down credit card balances is the fastest way to improve this number because credit card payments are counted as debt even if you pay them in full each month. If you have a $10,000 credit card balance and a $500 monthly minimum, that $500 counts as debt. Paying the card down to $2,000 cuts that minimum to $100, which immediately lowers your ratio. This also raises your credit score because it lowers your credit utilization — the percentage of your available credit that you are using.
Prioritize cards with the highest balances or highest interest rates first. Paying off one card entirely is better than paying down three cards a little, because it removes one monthly payment from your debt calculation. If you have the cash to do it, this step alone can raise your score 50 to 100 points within two or three months.
Disputing errors and removing inaccurate accounts
Credit reports contain mistakes more often than most people realize. A late payment that was not yours, an account opened in your name by fraud, a paid-off debt still showing as active, or a collection account that belongs to someone with a similar name — all of these appear on reports and all of them can be removed for free.
Start by getting your credit report from all three bureaus: Equifax, Experian, and TransUnion. You can download them free once per year at annualcreditreport.com, which is the official site run by the three bureaus themselves. Read each report carefully and note anything that is wrong — an account you did not open, a late payment you know you made on time, a balance that does not match what you owe, or a collection account that you already paid.
Write to the bureau in writing (email or online dispute form, not a phone call) and describe the error. Include a copy of proof if you have it — a bank statement showing you paid on time, a receipt showing you paid off the collection, a police report if the account is fraudulent. The bureau has 30 days to investigate and respond. If they cannot verify the account is correct, they must remove it. This process is free and does not hurt your score.
Building a track record of on-time payments
The most recent 12 months of your payment history matter most to lenders. If you missed a payment six months ago but have paid everything on time since, that is a much stronger position than someone who missed a payment last month. This means you do not have to wait years to repair your credit — you can show improvement in three to six months of consistent, on-time payments.
Set up automatic payments for at least the minimum on every account — credit cards, car loans, student loans, utilities, phone bills, anything that reports to the credit bureaus. Automatic payments remove the risk of forgetting. Even if you are struggling financially, paying the minimum on time is better than paying more late. A $50 on-time payment helps your score; a $500 late payment hurts it.
If you have missed payments in the past, do not ignore the accounts. Contact the creditor and ask about a payment plan or settlement. Paying off an old collection account will not remove it from your report, but it will change the status from "unpaid" to "paid," which lenders view more favorably. Some creditors will also agree to remove the account entirely if you pay in full — ask before you pay.
Becoming an authorized user on someone else's account
If someone with good credit adds you as an authorized user on their credit card or loan account, that account's payment history can appear on your report. This works only if the account holder has a long history of on-time payments and a low balance. A single late payment on their account will hurt your score too, so this only works if you trust the person completely.
The account does not have to be in your name and you do not have to use the card. Some people add family members just to boost their credit. However, some lenders now ignore authorized user accounts when reviewing mortgage applications, so this is a supplement to your own work, not a replacement for it. It can help, but it is not a shortcut.
Waiting out old negative marks
Late payments, collections, and charge-offs stay on your credit report for seven years from the date of the first missed payment. After seven years, they fall off automatically. Bankruptcy stays for seven years if it is Chapter 13, or ten years if it is Chapter 7. This does not mean you cannot buy a home before then — lenders will work with you if the damage is old enough and your recent history is clean.
A late payment from five years ago hurts much less than one from five months ago. If you have a major negative mark that is more than three years old and your last 12 months are clean, many lenders will overlook it. Some programs, like FHA loans, have specific waiting periods: 24 months after a foreclosure, 36 months after a short sale, three years after a bankruptcy discharge. Check with lenders about their specific rules.
Do not close old accounts while you wait. The age of your oldest account matters to your score. Closing a card removes that history and can actually lower your score. Keep old accounts open and unused if possible.
Understanding credit score ranges and what they mean for mortgage rates
Credit scores range from 300 to 850. Most mortgage lenders have minimum scores, and the higher your score, the lower your interest rate. A rough guide: 620–669 is considered poor and opens only subprime or FHA loans; 670–739 is fair and opens conventional loans with higher rates; 740–799 is good and gets you standard conventional rates; 800+ is excellent and gets you the best available rates.
The difference between a 680 score and a 740 score can be 0.5 to 1 percentage point in interest rate. On a $300,000 loan, that is $100 to $200 more per month. Over 30 years, it is $36,000 to $72,000 in extra cost. This is why spending three to six months raising your score from 680 to 740 is worth the wait — it saves real money.
Different lenders have different minimum scores and different rate tiers. Shop around. A credit union might work with a 600 score where a bank will not. An FHA lender might offer better rates than a conventional lender for your score range. Getting quotes from three to five lenders shows you what is actually available to you.
Frequently Asked Questions
How long does it take to raise my credit score enough to buy a home?
Three to six months of on-time payments can raise your score 50 to 100 points if you also pay down credit card balances. If you have recent late payments or collections, lenders usually want to see 12 months of clean history before they will approve you. Older negative marks matter less, so the timeline depends on how recent your problems are.
Will paying off a collection account remove it from my credit report?
No. Paying off a collection changes its status from "unpaid" to "paid," which lenders view better, but the account stays on your report for seven years. Some collection agencies will agree to remove the account entirely if you negotiate before paying, so ask about this option before you send money.
Should I close credit cards after I pay them off?
No. Closing cards lowers your available credit and removes payment history from your report, both of which can lower your score. Keep paid-off cards open and unused. The older the card, the more valuable it is to keep open because age of accounts matters to your score.
Can I buy a home with a credit score below 620?
Some lenders offer FHA loans with scores as low as 580, and a few will go lower with a larger down payment. However, the interest rate will be significantly higher — often 2 to 3 percentage points above standard rates. If you can wait three to six months to raise your score, you will save thousands in interest over the life of the loan.
What if I have an error on my credit report that the bureau won't remove?
If the bureau investigates and says the account is accurate, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or your state's attorney general. You can also add a statement to your report explaining your side. Some lenders will consider written explanations, especially if the error is old or if your recent history is clean.