6 Simple Tips For First-Time Home Buyers To Build Credit

It’s the holy grail of buying a home: boosting your credit score to get better loan terms.

A higher score means qualifying for a better home loan rate, which, in turn, can save you hundreds and maybe even thousands over the life of a mortgage. But first-time home buyers often find themselves in a quandary:  They’re typically younger, and that can translate into a credit history that’s less than extensive, and that might include a missed payment or two. Here are six suggestions for upping your credit score before putting money down on your first home.

Access Free Credit Reports

You can access a free credit report once a year from each of the three major credit reporting bureaus — Equifax, Experian, and TransUnion. In addition to finding out your credit score, you’ll be able to see areas needing improvement and also detect any incorrect information that’s negatively impacting your score.

Pay Down Credit Card Balances

Your credit utilization rate accounts for approximately 30% of your overall credit score. But what exactly is it? A credit utilization rate refers to how much of your approved credit you’re actually using. If you have a $5,000 limit on a credit card and you’ve used $2,500, your credit utilization rate is 50%. The higher the credit utilization rate, the more negatively it affects a credit score. Experts recommend keeping the rate under 30%.

Remove Late Payments From Your Report

Think one late payment won’t affect your score? Think again. Because payment history accounts for 35% of your credit score, even one payment received past the due date can bring your credit score down. But as the late payment ages, its negative effect on your score diminishes; after seven years, it (thankfully) drops off your credit report. You can, however, get late payments removed sooner. First, if the late payment was a mistake on the creditor’s part, call them directly and ask to have it removed. If they refuse, contact the credit bureaus and dispute the payment. The creditor has 30 days to respond and verify the payment; in the absence of that, the payment is deleted. Second, when you realize a payment is late, pay it ASAP and call the creditor. Ask if they would consider not reporting the delinquency if they haven’t done so already.

Ask To Become An Authorized User

Give yourself credit — literally — for becoming an authorized user on someone else’s account. When you become an authorized user on the account of someone who has excellent credit, their credit account will show up on your credit report. What if it’s an older account? Even better. You’ll benefit from giving yourself more years of good credit history.

Put Off Applying For New Credit For Six Months

Credit card offers pop up everywhere — in the mail, at your favorite store, online. But resisting the temptation could pay off, and not just in terms of having fewer payments. Every time you apply for a new credit card or loan, your credit score is affected. Even if it drops by only a few points, the impact could be substantial if your score comes in at just below your lender’s cutoff for a better loan rate.

Look Into Programs Like FHA

A low credit score doesn’t necessarily mean you need to shut the door on home ownership. If your score is at least 580, the Federal Housing Administration (FHA) allows you to apply for a home loan with a down payment of only 3.5%. If your credit has dipped below the 580 mark, you can still apply for a loan but be prepared to have 10% available as a down payment. No credit at all? Some FHA lenders will accept an established payment history from alternate means such as phone, rent, and utility payments.