To address credit issues when applying for a mortgage, first review and dispute inaccuracies on credit reports via . Pay down revolving debt to reduce credit utilization ratios below 30%, and maintain a consistent payment history for at least 12 months. Consider secured credit cards or credit-builder loans if needed. If you have significant delinquencies, negotiate payment plans with creditors or seek credit counseling through a nonprofit agency. Document all efforts to demonstrate financial responsibility to mortgage lenders.

Maintaining a strong credit profile is critical because mortgage approval depends heavily on creditworthiness. A FICO score below 620 often results in higher interest rates or denial, while scores above 740 qualify for the best terms. According to the Consumer Financial Protection Bureau (2022), 45% of mortgage applicants with scores below 620 were denied or offered subprime loans. Additionally, debt-to-income (DTI) ratios exceeding 43% can lead to rejection, as lenders view higher DTI as a risk. For example, the Federal Reserve (2023) found that borrowers with DTI ratios above 50% were 60% less likely to secure conforming loans. Proactively improving credit scores and DTI ratios can save thousands in interest costs over a mortgage term. Fannie Mae’s 2023 conforming loan limits also require a minimum score of 620 for standard loans, underscoring the importance of credit repair. By addressing credit issues early, applicants enhance eligibility, secure favorable rates, and reduce long-term borrowing expenses.