Buying a house soon? You should be checking your credit score now. The sooner you know what your credit score is, the easier the home buying process will be.
I know it can be scary at first. Especially if you have or had a lot of debt, know you missed a payment, or you have never checked before, but you need to know where you stand.
The good news is, there are many free educational resources that can help you understand how to improve your credit score. You don’t need to pay a credit repair company to increase your credit score.
Let’s start at the beginning. What is a credit score? It is a number ranging from 300-850 that represents your credit worthiness (or likelihood you will pay your bills on time). The higher your credit score, the more likely a bank or other financial institution will be willing give you a loan.
If you are like me, you will need a mortgage when buying a home. We are looking to buy a house within the next year, so we have been doing a lot of research on lenders, how much we want to pay, and keeping a close eye on our credit scores.
There are many different credit scoring models but the FICO® Score is the credit score used by the majority of lenders. Different lenders may use additional criteria when it comes to granting credit, such as your income.
Here’s an overview of the FICO® Score ranges:
- Excellent: 800-850
- Very good: 740-799
- Good: 670-739
- Fair: 580-669
- Very Poor: 300-579
Why Should You Care About Your Credit Score?
Your credit score is one of several key factors in determining whether you’ll be approved for a loan and what credit terms you will receive. Those with higher credit scores generally receive more favorable credit terms, which may translate into lower monthly payments and less interest paid over the life of the loan.
This is SO important when buying a house! You most likely will be borrowing a significant amount of money so if you can save money on your monthly interest payments, you can save THOUSANDS over the life of the loan.
Tips for Improving Your Credit Score
Pay your bills on time. Because payment history is the most important factor in making up your credit score, paying all your bills on time every month is critical to improving your credit. If you have any payments that are past due, prioritize paying those off soon to avoid a significant impact on your credit score.
Think twice before closing out older accounts. A longer credit history will have a positive effect on your credit scores. While you may be tempted to close older credit accounts after they’ve been paid off, try to think about this more holistically. While there are a number of reasons you may want or need to close an older account, just know that doing so may shorten the length of your credit history and, in turn, affect your overall score.
Dispute inaccurate information on your report. Mistakes happen. Monitor your credit reports – which are produced by the three main credit reporting agencies (Experian, TransUnion and Equifax) – to make sure all of the information is accurate. If you find something that’s out of place, initiate a written dispute with the credit reporting agency that produced the report and request that they remove or amend the inaccurate information as soon as possible.
Make any outstanding payments. If you have any payments that are past due, bringing them up to date may save your credit score from taking an even bigger hit.
How to Check Your Credit Reports & FICO® Score for FREE
You can view your Experian, Transunion and Equifax credit report for FREE by visiting annualcreditreport.com. You can get a free copy of your credit report every 12 months from each credit reporting company. You don’t need to get all three at once so you can decide throughout the year when you want to request each report.
In addition, due to the ongoing COVID-19 crisis, the three main credit reporting agencies are currently allowing consumers to check their credit reports on a WEEKLY basis. I highly recommend taking advantage of this offering while it’s available.
If you still feel overwhelmed or maybe you know your credit score and you want to simply better understand how to improve your FICO® Score before you buy a home, check out FICO’s Score A Better Future program. The program offers free educational (and now virtual!) events in communities across the country. During the events, you can learn about the factors that impact your FICO® Score and other tips for building credit. Registered attendees can also take advantage of free non-profit credit counseling to gain access to their FICO® Score and a customized financial plan following the event.
Score A Better Future participants receive:
- Free access to their FICO® Score, the score used in over 90% of all lending decisions
- free access to one-on-one credit and financial counseling, and customized plans to help you meet your targeted financial goals
- An educational session led by FICO on the myths and facts about FICO® Scores and how to build credit
Want to see if there are any Score A Better Future events near you? Click here to view the upcoming events!