How to Improve Your Credit Score for a Better Mortgage Rate

Your credit score plays a significant role in determining the mortgage rate you’ll receive when purchasing or refinancing a home. A higher credit score can help you secure a lower interest rate, which can translate into substantial savings over the life of your loan. In 2025, as mortgage rates fluctuate, improving your credit score before applying for a mortgage can make a huge difference in the affordability of your home loan.

In this post, we’ll discuss actionable steps to improve your credit score and why it’s crucial for getting a better mortgage rate.

1. Understand Your Credit Score

Before you can improve your credit score, it’s important to understand what it is and how it’s calculated. Your credit score is a number that represents your creditworthiness, and it is calculated based on five factors:

• Payment history (35%): Your record of paying credit accounts on time.
• Credit utilization (30%): The ratio of your credit card balances to credit limits.
• Length of credit history (15%): The age of your credit accounts.
• New credit (10%): The number of recent credit inquiries or new accounts.
• Types of credit used (10%): The variety of credit accounts you have, such as credit cards, mortgages, and installment loans.

Why it matters:

• Your credit score is used by lenders to determine your risk level as a borrower. The higher the score, the less risky you appear to lenders, leading to lower mortgage rates.

2. Check Your Credit Report for Errors

Before making any changes to improve your credit score, it’s crucial to review your credit report for errors. Sometimes, incorrect information, like late payments or accounts that don’t belong to you, can negatively impact your score.

• Request a free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once per year at AnnualCreditReport.com.
• Look for any inaccuracies, such as late payments that were paid on time or accounts that should have been removed (e.g., after seven years for most negative marks).

If you find errors, dispute them with the respective credit bureau. Correcting mistakes on your credit report can quickly improve your score.

Why it matters:

• Removing errors from your credit report can immediately boost your score and improve your chances of qualifying for a lower mortgage rate.

3. Pay Your Bills on Time

One of the most important factors that affect your credit score is payment history. A single missed payment can have a long-lasting impact on your credit score. To improve your credit score, focus on paying your bills on time—every time.

• Set up automatic payments or reminders to ensure you never miss a due date.
• If you’ve missed payments in the past, get current on all accounts and work to stay current.

Why it matters:

• Consistently paying bills on time shows lenders that you’re a reliable borrower, which can help improve your credit score and qualify you for a better mortgage rate.

4. Reduce Your Credit Card Balances

Your credit utilization ratio is the amount of credit you’re using compared to your total available credit. A higher ratio can hurt your credit score. As a general rule, it’s best to keep your utilization under 30%, and ideally under 10%, to improve your score.

• If possible, pay down your credit card balances to reduce your utilization rate.
• Avoid making new charges on your cards until your balances are lower.

Why it matters:

• Reducing credit card debt lowers your credit utilization ratio, which can lead to a higher credit score and a more favorable mortgage rate.

5. Avoid Opening New Credit Accounts

Opening new credit accounts can temporarily reduce your credit score because of the hard inquiry that occurs when you apply for new credit. Additionally, new accounts shorten your average credit history, which can negatively impact your score.

• Only open new credit accounts if absolutely necessary.
• Instead, focus on improving the existing credit accounts you have.

Why it matters:

• Every hard inquiry can cause a small dip in your credit score, and multiple inquiries within a short period can significantly affect your mortgage application.

6. Keep Old Accounts Open

The length of your credit history accounts for 15% of your credit score, so keeping older accounts open can work in your favor. If you close an old credit card account, it may lower your average account age and potentially hurt your score.

• If you have an old credit card with no annual fee, keep it open even if you’re not using it.

Why it matters:

• Longer credit history can improve your credit score, which will help you secure a better mortgage rate.

7. Work with a Credit Counselor

If you're struggling to improve your credit score, a credit counselor can help. Credit counselors can offer personalized advice, create a debt repayment plan, and help you understand how to manage your finances more effectively.

• Look for a certified credit counselor through organizations like the National Foundation for Credit Counseling (NFCC).

Why it matters:

• A credit counselor can help you develop a strategy for improving your credit score, which may result in better mortgage options.

8. Be Patient and Consistent

Improving your credit score takes time. It’s important to stay consistent with your efforts, even if results aren’t immediate. Over time, small improvements will add up, and you’ll be in a better position to secure a lower mortgage rate when you’re ready to apply for a loan.

Why it matters:

• A higher credit score doesn’t happen overnight, but consistent efforts can lead to a significant improvement over time.

Final Thoughts

Improving your credit score is one of the most effective ways to secure a better mortgage rate in 2025. By following the steps outlined in this guide—checking your credit report for errors, paying bills on time, reducing credit card balances, and avoiding new credit inquiries—you’ll be in a better position to get a competitive mortgage rate.

Need Help Finding the Best Mortgage Rate?

At SouthFork Funding, we’re here to help you find the best mortgage options tailored to your financial situation. Contact us today to learn more about how we can assist you in securing a great mortgage rate!