Credit utilization before a mortgage application

What the CFPB says

The CFPB's guidance on keeping a good score puts on-time payment first, calling repayment history the number one factor for most scores. Its second point is to stay well below your limits. It notes that scoring models look at how much of your credit limit you use, that many experts recommend staying under 30 percent of your total limit, and that consumers with the highest scores often use less than 10 percent.

The same page makes a point many people miss. You do not need to carry a balance or owe interest to build a good score. Paying in full each month helps both the score and your costs.

The balance that gets reported

Your card issuer usually reports to the credit bureaus once a month, and the balance it sends is often the one on your statement. That creates a timing problem:

• You charge $3,000 during the month.
• The statement closes showing $3,000.
• You pay the full $3,000 by the due date three weeks later.

You never paid interest, but your report shows a $3,000 balance until the next statement. If a lender pulls your credit in that window, the higher figure is what it sees.

The fix is simple. Find each card's statement closing date and make a payment a few days before it. The statement then shows a lower balance, and so does your report.

Overall and per-card utilization

Your total matters, but so does how each account looks. A card sitting at its limit stands out to anyone reading your report, even when the overall figure is moderate. When cash is limited, a sensible order is:

1. Bring any card that is at or near its limit below that level.
2. Then lower the overall figure toward 30 percent.
3. With money left over, keep going toward 10 percent.

Do not drain the money you need for the down payment, closing costs or reserves to do this. Lenders also check that you have enough cash to close.

Mistakes that raise utilization

Closing old cards. A closed card's limit stops counting. If you close a $5,000 card with no balance, the same debt is spread over less available credit, and the ratio rises.

Asking for a lower limit. A lower limit has the same effect.

Opening a new card for a sign-up offer. A new account adds a hard inquiry and a new account to your file just before a lender reviews it. The extra limit does not usually make up for that during a loan process.

Moving balances to an installment loan without a plan. A personal loan used to pay off cards can lower card utilization, but it adds a new account and a fixed monthly payment that goes into your debt-to-income ratio. Talk to your loan officer first.

Running balances up after preapproval. Lenders often check credit again before closing. New balances can change your score, your monthly payments and your approval.

How to see your numbers

Pull your reports from all three bureaus at AnnualCreditReport.com, the free source the CFPB points to. Each card shows its limit and last reported balance. Add them up and run the calculator.

Your lender may use different score versions than the ones you see in an app, so a free score is a guide rather than the number on your loan. The direction of change is what matters. Lower reported balances generally help.

If you are already in process

If your loan application is underway and a lower score is costing you a better price, ask your loan officer whether a rapid rescore makes sense. That service is requested through the lender after you pay down balances, and it asks the bureaus to update your file sooner than the normal monthly cycle. You cannot order it yourself.

The bottom line

Utilization is one of the fastest-moving parts of your score. Pay down balances before each statement closes, deal with nearly maxed cards first and keep old accounts open. Protect the cash you need for closing. Then check your reports to make sure the lower balances posted before a lender pulls your credit.