How to Improve Your Credit Before Applying for a Mortgage
Updated: Oct 8
Your credit profile can play an important role when you're applying for a mortgage. Stronger credit can give you access to more lending options and, depending on your circumstances, potentially better mortgage terms.
The good news? You don't always have to wait months or years to improve your credit. Some changes may have a relatively quick impact, particularly when your credit is being affected by high revolving balances or errors on your credit report.
Here are some of the most effective steps to consider.
1. Pay Down Your Credit Card Balances
One of the most useful ways to strengthen your credit profile is to reduce the amount of your available revolving credit you're using.
For example, if you have a credit card with a $10,000 limit and a $7,000 balance, you're using 70% of the credit available to you.
Even if you're making every payment on time, consistently carrying a high balance relative to your credit limit can negatively affect your credit score.
A good target
As a general guideline, try to keep your credit utilization below 30% of your available limit—and lower can be even better.
For example:
$10,000 limit with a $7,000 balance = 70% utilization
$10,000 limit with a $3,000 balance = 30% utilization
$10,000 limit with a $1,000 balance = 10% utilization
The Government of Canada similarly recommends trying to use less than 30% of your available credit.
If you're preparing for a mortgage application, paying down revolving debt can potentially help both your credit profile and your debt-service ratios.
2. Think Twice Before Closing a Credit Card You've Paid Off
It can be tempting to close a credit card as soon as you've paid off the balance, but consider how closing the account could affect your overall credit profile first.
Closing a card reduces the amount of credit available to you, which could increase your overall utilization ratio. The age of your credit accounts can also be a factor in your credit profile.
If the card has no annual fee and there isn't another reason to close it, keeping an older account open may be worth considering. The Government of Canada recommends considering keeping an older account open and using it occasionally to help maintain credit history.
3. Make Every Payment on Time
Payment history is an important component of your credit profile.
Late or missed payments can negatively affect your credit, so consistency matters. If keeping track of multiple due dates is difficult, consider setting up automatic payments for at least the minimum required amount.
That gives you a safeguard against accidentally missing a payment.
Consider paying your credit card more frequently
You don't have to wait until the due date to make a credit-card payment.
If you regularly use your card, making payments throughout the month can help keep the balance from climbing too high. This can be particularly useful when you're preparing for a mortgage application because the balance appearing on your credit report may not necessarily be the balance you see on the day a lender checks your credit.
The objective isn't simply to make more payments—it's to pay on time and keep the reported balance and utilization under control.
4. Don't Apply for Multiple Credit Products at Once
If you're trying to strengthen your credit before applying for a mortgage, avoid applying for several new credit cards, loans or other credit products at the same time unless you genuinely need them.
Credit applications can result in hard inquiries on your credit report. Too many credit checks may affect your score and can make it appear that you're urgently seeking additional credit.
If you're planning to apply for a mortgage soon, it's generally a good idea to avoid unnecessary new borrowing until you've discussed your overall strategy with your mortgage professional.
5. Check Your Credit Report for Errors
Sometimes the problem isn't your financial behaviour at all.
Errors can appear on credit reports, including:
Accounts that don't belong to you
Incorrect payment information
Accounts showing as unpaid when they've been paid
Incorrect personal information
Duplicate accounts
You can obtain your credit report from Canada's two major credit bureaus, Equifax and TransUnion, and dispute information you believe is incorrect. The Financial Consumer Agency of Canada recommends checking your credit report at least once a year for errors and signs of identity theft.
If inaccurate information is hurting your credit profile, correcting it can be an important first step.
6. Avoid Maxing Out Your Available Credit
Even when you're making payments on time, consistently carrying balances close to your credit limits can work against you.
For example, three credit cards with $5,000 limits and balances of $4,500 each create a very different credit profile from those same cards carrying balances of $500 each.
If you're preparing for a mortgage application, reducing those balances may strengthen your credit profile while also reducing your monthly debt obligations.
7. Be Careful With “Quick Fix” Credit Repair Promises
Be skeptical of companies promising to dramatically increase your credit score overnight.
Accurate negative information generally can't simply be removed from your credit history because you've paid a company to dispute it.
Improving credit is usually about correcting genuine errors, reducing debt, paying bills consistently and allowing your credit history to strengthen over time.
How Quickly Can Your Credit Score Improve?
It depends on what's affecting it.
Some changes can appear relatively quickly after creditors report updated information to the credit bureaus. However, the timing varies depending on the creditor, reporting cycle and reason your score is lower.
If high credit utilization is one of the primary issues, reducing your balances may help once those lower balances are reported.
Other issues—such as missed payments, collections or a limited credit history—may take considerably longer to overcome.
And remember: your credit score is only one part of a mortgage application. Lenders also consider factors such as income, existing debts, down payment, property and overall qualification.
Thinking About a Mortgage?
If you're planning to buy a home in the next few months, don't wait until you're ready to make an offer to look at your credit.
Reviewing your credit early gives you time to identify potential issues and develop a strategy before you're under the pressure of a purchase contract.
A mortgage professional can help you understand how your credit profile, income, debt and down payment work together—and whether there are steps worth taking before submitting an application.
Sometimes, the best mortgage strategy starts several months before you ever make an offer.
The Mortgage Minute
Want to strengthen your credit before applying for a mortgage? Start with three things:
Keep revolving credit balances low.
Make every payment on time.
Avoid unnecessary new credit applications.
Small changes today can put you in a stronger position when you're ready to finance your next home.
This information is provided for general educational purposes only and is not financial, credit or mortgage advice specific to your circumstances. Credit scoring models and lender requirements vary.
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