Credit Score Blues? Here’s How to Build Credit, Fast, Before You Buy a House

Get a copy of your credit report

Melinda Opperman is Chief External Affairs Officer of Credit.org, a nonprofit consumer credit service that helps people rebuild and repair credit, as well as providing first-time homebuyer education, bankruptcy counseling, and credit report review services. “We are always working to help people improve their financial wellbeing, using whatever kind of service they need to achieve that goal,” she says.

Opperman says the first step for anyone looking to build up their credit is to get a copy of their credit report, which can be obtained free at www.annualcreditreport.com. “Initially, there’s no need to purchase a credit report,” she says.

Federal law mandates that consumers are allowed one free credit report each year. Simply go to the site and click on “Request your free credit reports,” fill out the form, and select which reporting agencies you’d like to use.

There are three major consumer credit reporting agencies, Transunion, Equifax, and Experian. You can get one free report from each agency — which is recommended, as it’s possible to have different information recorded on each individual report. These reports do not include credit scores, but will give you current balances on any accounts, track late payments, and show outstanding collections.

Review the report and resolve any errors or collections

Once you get copies of your credit reports from the three agencies, it’s important to review them carefully for any errors. “We know one in four credit reports contain errors significant enough to impact one’s credit-worthiness,” Opperman says. “Verifying that the credit report is correct and up to date will ensure that the score derived from it is an accurate one.”

You should reach out to the company that provided the incorrect information and the credit reporting agency to dispute the errors. If you have any collections on your account, it’s important to address them by contacting the company responsible and potentially paying off any outstanding balances.

Pay down your credit balances

FICO scores are calculated using several factors, with existing credit card debt accounting for 30% of your overall score. If you’re carrying a large amount of credit card debt, paying those bills down can be one of the most significant ways to improve your credit fast.

Arizona real estate agent James Rusch-Michener, who has 11 years of experience in the real estate industry, recommends that homebuyers talk to their lender about strategic ways to pay down existing debt. “I always tell my buyers to talk to their lender about which debts to pay off and how best to do it,” he says.

“Raising your FICO score from, for example, a 580 to a 650, can mean a drastic change in interest rate and subsequent payment” of your mortgage loan.

Rusch-Michener also suggests that potential buyers consider applying any financial windfalls toward outstanding debt. “If you find out you’re getting a tax refund, maybe put that money toward your debt,” he says.

Negotiate with creditors to reduce your debt

Reaching out to creditors directly can sometimes help you reduce your debt. Although you can’t completely remove unpaid debt from your report, you may be able to negotiate with a creditor to pay a specific amount in exchange for having the remaining balance forgiven and the debt marked as paid in full.

If you are able to negotiate a debt reduction, get the agreement in writing and verify that the outstanding debt has been cleared from your credit reports.

Put bills on autopay

Paying bills on time is crucial to maintaining good credit. If you put all your bills on autopay, you won’t have to worry about accidentally forgetting to make a payment.

“The best way to improve your credit is to pay on time and in full, month after month,” Opperman says. “The best credit scores build slowly over time, with solid payment activity.”

Request a credit limit increase

If you have a consistent payment record with a creditor and want to boost your FICO score, asking for a credit limit increase on your existing accounts can help, as having a higher credit limit than what you’re currently using does improve your credit.

According to Opperman, while it’s better to use one credit card responsibly rather than having multiple cards, having more available credit can be beneficial for your credit score. “If one can pay down their balance and/or have their credit limit raised so that they are using less than 10% of the credit available to them, that will have a great impact on one’s score,” she says.

Strategically open new accounts

It takes credit to build credit, and while opening a bunch of new accounts at once can be detrimental to your credit score, carefully opening a new account here and there can be a boost, especially if you don’t really have any credit to begin with.

Keep in mind, it takes about six months to see the effects of the new accounts, so this is a process that takes a bit of time.

Pay credit accounts twice a month

If you get in the habit of paying your accounts twice a month, you’ll be less likely to show a large outstanding balance on your credit report. This is another way autopay can be your friend, as it’s easy enough to set up twice-monthly payments that align with paydays if you get paid every other week.

Get a secured credit card

If you aren’t able to get approved for a traditional credit card account, a secured credit card, in which you put down a deposit with the creditor and they hold it until the account is paid, is a great way to safely build credit.

Opperman notes that in addition to a secured credit card, department store credit cards or gas cards are relatively easy to obtain, and these also help build credit.

“Make sure the credit card is one you can afford, and never miss a payment,” she says. “For new credit users, we often recommend gas cards, as they will show regular activity to credit reporting agencies, but the risk of getting over one’s head in debt is minimal.”

There are also alternative credit scores for people who pay on time, but don’t have any debts on their credit report. Says Rusch-Michener, “I tell my clients to make sure they have utilities in their name, as that also helps build credit.”

“Things like rent, utilities, even cell phone bills can be used to establish that the borrower is capable of making payments,” Opperman says. “One should also ask their landlord if they report rental payments to any rent reporting bureaus.”

Become an authorized user on someone else’s account

If you have a family member who has good credit, ask if they’d consider allowing you to become an authorized user on their account. As an authorized user, you get a credit card in your name that is attached to their card, allowing you to make purchases and use the card as if it is yours, but you are not legally responsible for the debt.

The cardholder’s positive credit history will help you build your own credit, as long as they don’t have an excessive balance and payments are made on time.

Obtain a different kind of loan

Diversifying the type of credit you have can also boost your credit score before you buy a house. “As one expands their credit, remember it’s the mix of accounts, not just the number,” Opperman says. “Having a credit card and an auto loan is better than having seven credit card accounts. Try to diversify the kinds of debts that are being paid off, and don’t just use revolving credit for everything.”

Apply for a credit-builder loan

Similar to a secured credit card, a credit-builder loan is designed specifically to help people who don’t have much credit, or who have bad credit, to build on and improve their scores. The financial institution takes a deposit, which can range anywhere from $300 to $1,000, and you make monthly payments against that amount, receiving it back in full once you’ve made all the required payments.

What your improved score means for you

Once you’ve done the work to build and improve your credit, keeping your credit in good shape before your home purchase is just as important.

“Credit is huge,” Rusch-Michener says. “The stronger your credit score, the better your chances of getting a good loan and a lower interest rate. Follow what your lender advises, and you can really increase your credit score, and take time to build your credit.”

“One’s credit score tells lenders whether the borrower is ready for a mortgage,” Opperman says, “And borrowers should take a cue from that and ask themselves if they’re truly ready for a mortgage payment. If one’s score isn’t good enough to get a loan, they might want to take some time to improve their credit naturally, to prove to themselves as well as to lenders that they’re really ready for the next step toward homeownership.”

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