What Buyers Need to Know

How to find out your credit score

By now, you’re probably getting pretty curious about your credit score and how you’re faring according to FICO. There’s good news and bad news.

The good news is that all Americans have the right to one free credit report each year from all three bureaus. You can find yours at AnnualCreditReport.com, the only government-sanctioned website for free credit reports.

These free reports will give you invaluable information about your credit history and guide you as you make any improvements necessary to buy a home.

Now for the bad news: These credit reports won’t tell you your FICO score. They will tell you if there are any negative credit events impacting your score (you’ll likely want to fix these before applying for a mortgage), but if you want your actual FICO score, you’ll need to dig deeper.

You can pay to get your FICO score through an authorized retailer, but there are free ways to access that all-important number too!

One way you may be able to get your FICO score for free is through your bank or lending institution, thanks to the FICO Open Access Program. If you already use a major financial institution like Citi, Bank of America, Discover, or Wells Fargo, you can probably get a free FICO score today.

To check if your financial institution is part of the Open Access program, check here.

How can you build credit if you don’t have any yet?

What if you don’t have any credit at all? Not to worry — there’s plenty you can do to establish a credit history and build your credit, including:

Open a credit card

If you pay your card on time and in full each month, you’ll be building credit in no time. Sure, new credit will negatively impact your score for a time, but the longer-term benefits of making payments each month will help boost your credit over time.

If you can’t get a regular credit card (retailer and department store credit cards tend to be the easiest to qualify for), you may be able to get a secured credit card, which requires an upfront deposit that’s held until the card is paid back.

Take on an auto loan

Since auto loans are considered installment credit, similar to a mortgage, they show lenders that you can manage debt responsibly over time. By consistently making on-time payments, you establish a positive payment history, which is the most significant factor in your credit score. Taking on a car loan also diversifies your credit mix, another key component lenders look at when evaluating your credit score for a home loan.

If you’re just starting to build credit, consider getting a loan for a modest, affordable vehicle. Shop around for competitive interest rates and, if needed, explore options like a co-signer or a lender that specializes in financing for first-time borrowers. Just be sure the monthly payments fit within your budget. Missed or late payments can hurt your credit instead of helping it.

Join someone else’s account

If you have a loved one or significant other with a credit card, and they add you to their account, it will help build your credit.

However, understand that you could hurt your loved one’s credit if you, say, failed to make a payment or overcharge the account. Make sure to set ground rules first, and only go this route with someone you trust.

While establishing credit, you must make all payments on time and in full each month and try to keep your utilization low.

Keep in mind that you’ll need around six months to recover from the hit to your credit for opening a new account. After that point, you should see your score picking up steam.

Understand that there is no magic bullet, and building credit takes time. It’s probably best to give yourself a year or two to establish good credit before applying for a mortgage.

How can I improve my credit score?

If the only thing standing between you and buying a house is your credit score, worry not. There are a ton of ways to improve your score so you can get approved for a mortgage and nab a competitive mortgage interest rate.

But first and foremost is paying your bills on time every month and making sure you keep your credit utilization low.

“It’s extremely important to make sure you either pay off all of your debts or at least get all of your credit card debt to less than 25% owed,” explains top Chicago agent Melanie Giglio-Vakos, who works with 74% more single-family homes than the average area agent.

“What I mean by that is, if you have a credit card that has a $10,000 limit, you need to have no more than $2,500 owed on the card, or else it will affect your credit score negatively each month,” she adds.

Your monthly debt payments will also affect how much money you can borrow for a home, so reducing your debt may mean qualifying for a bigger mortgage.

But besides the obvious, what are some other ways you can improve your credit score? Let’s walk through some of your options.