Improving a FICO credit score can also improve your interest rate and strengthen an application. However, increasing credit scores can require a bit of work. To improve scores, borrowers must understand how FICOs are generated.

Credit History and Repairing Past Mistakes

To improve a FICO credit score, start by cleaning up the credit history portion of a report. Verify all data reported on the report, understanding that there is usually a lag of perhaps a month on activity which has recently occurred.  Pay attention to any late payments and make sure that credit history is accurate.  Collections and charge-offs should be analyzed for accuracy.  Paying off collection accounts can actually lower your score in the short term.  Do not pay any collection balances without checking with your loan officer first.  For some mortgage types, such as FHA, medical collections may not need to be paid at all.  Bankruptcy and foreclosure information on the report, including dates of filing and discharge, should be verified as accurate.  Note any late payments which you think are in error and obtain payment documentation which would prove that the payment(s) were paid as agreed, so late payments may be removed from the report.

Make sure all bills are paid on time; even a minimum payment if you can't pay more. Every successive month of recent on-time payments will mitigate past negative events. Reestablished credit is essential after past credit issues.  Bankruptcy, foreclosure and deed in lieu need to be seasoned, according to mortgage type desired.

There are standard processes required to correct inaccurate credit activity with the credit bureaus.  Check with the individual bureaus online:  Transunion, Experian and Equifax for their procedures or check with your knowledgeable loan officer for the proper advice.  If you have documentation which proves negatively reported information on the report to be inaccurate, be sure to have your loan officer assist with a credit repair at the bureau level, which should improve your credit scores.  

Credit Utilization Ratios and Reducing Debt Load

Another component of a FICO score  is the credit utilization ratio on revolving accounts. The ratio of balance to card limit is critical to enhancing your FICO scores. The lower the ratio, the better the score... for example, a $400 balance on a $1500 limit will reflect better on the score than an $800 balance on a $1000 limit.  If you pay off a card, do not close it out; leave them open with zero balance  to decrease your utilization ratio.  Request a limit increase on a card if it's overutilized, thereby improving the utilization ratio.  In the case of an $800 balance on a $1000 limit, if you can get the creditor to increase your limit to say, $2500, that ratio will be vastly improved and your score may improve by a few points once it's reflected on your report.

Some people try opening new accounts to increase their available credit limits. While this does improve the credit utilization ratio, it also increases the number of credit items listed and the number of new credit entries. This can lower your score.  Consider being added to an existing account as an authorized user instead.  Again, do your research before attempting to improve scores and find a loan officer with a strong knowledge of credit enhancement. 

Credit Length and Credit Scores for Buying a House

Potential home buyers can't do anything to lengthen their credit history, but they can make sure to start building it responsibly. Start by getting a credit card or installment loan and making monthly payments on time. By doing so, borrowers can show they are financially responsible right away. The sooner the better.  If you have poor credit, open a secured credit card, even with an annual fee, and charge small amounts monthly, paying off each month to generate positive activity.  Eventually, the good credit will have a positive impact on poor, older activity.

Credit Types and Creating Variety

It can be tempting to open more accounts to make a credit report seem more varied. However, this could have the opposite effect on anyone applying for a mortgage soon. Credit variety is something borrowers should keep in mind going forward or when building credit.  One or two installment accounts and one or two revolving accounts, paid as agreed, is all that it takes to build a great score.

Anyone planning to buy a home soon should also avoid making big purchases or incurring substantial debts right before applying for a mortgage. This can unnecessarily lower a credit score.  Do not apply for credit which you do not need.  

Number of Credit Inquiries

Another way to improve a FICO score is to limit the number of credit inquiries.  All mortgage inquiries made within a 30 day period count as one pull, so if you're going to shop for a mortgage and have your credit pulled by lenders, do it within a short period of time.  All mortgage credit pulls are hard credit checks and may affect your score, but multiple pulls within a 30 day period will only count as a single inquiry.

Improving a credit score to buy a house can have significant advantages. However, this takes time and energy, so potential home buyers should plan as much as possible. If you have very poor credit history, it may take months or years to erase past damage.  Consider engaging a mortgage professional who is knowledgeable about credit enhancement or even a credit repair specialist or attorney, to assist in this process.