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

You’ve decided the time has come to buy a house. You’ve saved your down payment, selected the perfect real estate agent, and figured out exactly what city or neighborhood you want to call home.

But there might be one very important factor you’ve forgotten about, and it can affect not only your viability as a buyer, but also your spending power, interest rates, and attractiveness to both sellers and mortgage lenders: Your credit rating.

According to credit reporting agency Experian.com, a credit score, also known as a FICO score, of 700 and above is considered “good.” Anything in the 800 range is considered “excellent.” The average score for most consumers falls between 680 and 750.

Credit scores can impact many areas of your life. They not only show lenders your ability to pay your bills on time, but also how much debt you have and how much additional debt you can potentially carry. A good credit rating can smooth the way to a relatively painless loan approval, while a bad rating can make it difficult to get a loan at all.

Building good credit can feel insurmountable — but even if you don’t have a perfect score, or if you have no credit at all, with a little help from the experts, you can build up your credit and improve your scores surprisingly quickly.

We’ve researched some of the best and fastest ways to build credit, talking to both real estate professionals and consumer credit specialists to create a checklist of some of the best ways to build your credit and improve your overall credit rating.

Get a copy of your credit report

Melissa Opperman is President 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 for 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 yours now,” 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 and see if there are any errors. “We know one in four credit reports contain errors significant enough to impact one’s credit-worthiness,” says Opperman. “Verifying that the credit report is correct and up to date will ensure that the score derived from it is an accurate one.”

You will want to contact both the furnisher (or company) that has provided the erroneous information on your account, as well as contacting the credit reporting agency to dispute the errors. If you have any collections showing on your account, you will want to resolve those issues by contacting the company that has placed you into collections and potentially paying off any outstanding amounts.

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 quickly.

Arizona real estate agent James Rusch-Michener, a seven-year veteran of the industry, recommends that buyers 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.”

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

Contacting creditors directly can sometimes help you reduce your debt. While you can’t remove unpaid debt completely from your report, you can work with a creditor to see if they will, in exchange for you paying a specific amount, write off the remaining balance and mark the debt 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,” says Opperman. “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 is better to have one credit card that one uses responsibly than to have multiple cards, it is good for your credit card when you have more credit available to you. “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,” adds Opperman. “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. “As one expands their credit, remember it’s the mix of accounts, not just the number,” says Opperman. “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 really means for you

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

“Credit is huge,” says Rusch-Michener. “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.”

Adds Opperman, “One’s credit score tells lenders whether the borrower is ready for a mortgage, 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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