Credit scores and credit history have always played a vital role in the world of lending. Borrowers with bad credit either end up denied and unable to purchase a home with a mortgage or can only get a mortgage with a really high interest rate and less than favorable terms and conditions (adjustable rate mortgages versus fixed rate mortgages, for example). Borrowers with good or great credit, however, tend to get mortgage approval with favorable interest rates and terms and conditions. But before you apply for a mortgage, you need to know what your credit situation is on paper from the three primary credit bureaus (TransUnion, Equifax and Experian).

If you are preparing to buy a home, you first need to work on making yourself creditworthy to lenders you want to ask to fund your mortgage. Fortunately, there are steps you can take to create the ideal credit situation to increase your chance of approval from your mortgage lender.

Step #1. Check Your Credit

Pull your credit reports from each of the three primary credit bureaus—TransUnion, Experian and Equifax—and review these reports carefully to get an idea of what is showing up on your credit report—be it good or bad. The law entitles you to one free credit report a year from each of the bureaus by visiting www.annualcreditreport.com.

If you can verify your identity with security questions, you can view and print each of the credit reports online. If not,  the credit bureaus will mail a copy of the reports to the address on file.

Step #2. Clean or Freshen Up Your Credit

When you receive the credit reports, review each one carefully. Each credit bureau manages its own records, so the information may differ from report to report. Since you don’t know which report the lender will look at, you should keep all of your credit reports up-to-date.

Some of the negative items you are looking for on your credit report include:

• Inaccurate information
• Late payments
• Collection accounts
• Charged off accounts

If you find any negative marks or inaccurate information on your credit report, contact the creditor immediately. If it is a late payment issue or a collection account, see what kind of arrangements you can work out to take care of the debt.

If information is inaccurate or you cannot work out disputes with the creditor, then follow the dispute procedure on the credit report for each bureau. Some negative items, such as bankruptcies, you are not able to remove, but these items will fall off over a certain number of years—usually seven to 10 years.

Step #3. Start or Continue to Make Bill Payments on Time

According to FICO, the highest percentage of your score is calculated according to when you make your payment – on-time or late. In other words, you should always pay your bills on or before the due date. Late payments continue to drag down your credit score. If you’re already making your payments on time, continue to do so. If you’re not, start making your payments on time right away.

Step #4. Be Credit Wise

Mortgage lenders also review credit reports to determine how the applicant manages the credit and loans they already have. While the credit score plays a role in getting mortgage approval, so does the type of credit you have and how you use it. For example, mortgage lenders do not like to see applicants that have all of their credit cards maxed out, or that do not have a variety of loan types—auto loan, student loan, credit cards and other revolving accounts.

Step #5. Piggyback Credit

If you have bad credit but your spouse, family member or close friend with good credit is willing to help you out, then you can piggyback off their good credit. For example, they can add you as an authorized user to their credit card account. Use the card and pay off the balance in full every month. The credit of the person who has authorized you for the credit card becomes part of your credit, too, which can really give your credit score a boost.

Step #6. Don’t Max Out any Credit

Never use the full credit amount you have. If you have a credit line of $30,000, avoid carrying a balance of $30,000. If your balances are high on credit cards, then pay them down to a reasonable amount, so that you don’t have a balance that exceeds 30% of the credit line amount.

Step #7. Be Patient but Follow-up

If you’ve pulled your credit reports and everything seems to be in order, then you should be creditworthy and ready to apply for a mortgage. If you need to make yourself creditworthy, be patient and to follow-up with the creditors, collection agencies and credit bureaus until the negative and inaccurate items are corrected and your credit score improves.