How to Build Credit While Preparing to Buy Your First Home

Buying your first home? That’s big! And yet, all that excitement aside, there’s one little hitch that pops up in every first time buyer’s experience: credit.

Your credit score in all its three digit mystery can be your ticket in or your ticket out of the perfect home. Even if you’ve been working on your credit for a while or just starting out, the good news is you have time to get that score in shape before it’s released. Here’s how you can establish (or repair) credit for your first home purchase.

Why Your Score Matters (a lot)

Before I get to the how, let’s talk about the why. When you apply for a mortgage, lenders multiply your credit score and the number they look at most often? Yep, it’s your credit score.

Think of your credit score as your financial picture. A higher score is, “Hey, I’m a responsible person and I always pay on time!” And a lower score… well, that says something else. And since buying a home is one of the biggest investments you’ll probably make in your lifetime, banks need to know you’re not a wild card.

In general your good credit score will get you lower mortgage rates and save you a lot of money in the long run. But if you have bad credit as a first time buyer then don’t worry. All is not lost! Just have to do a little extra work before applying for that loan. But how do you establish or repair credit? Let’s get to it.

Step 1: Know Your Score

Before you can get started however you need to know your credit score and get use a Virginia credit union to do (or wherever you may reside). There are tons of sites out there (such as Credit Karma, Experian or your bank) to help you check your credit score without hurting it.

Once you have the number you can decide if you’re good or if you need to make some changes. So don’t beat yourself up if the number isn’t exactly where you want it to be — that’s why you’re here! The whole point is to do better not to regret.

Step 2: Understand Your Credit Report

Credit reports are overwhelming but they’re full of good information. Consider them your credit score’s “inside scoop”. And they contain information on how much debt you have, how well you’ve paid your bills and even if you made a mistake.

Yes, errors. They are more common than you think! Sometimes a late payment shows up as an error or an account you closed shows up as open. And trust me these little mistakes are like a ton of water on your credit score.

That’s why you should always check your credit report. Look for anything weird or off and fix it if you see something wrong. You can improve your score just by catching errors early.

Step 3: Pay on Time

Now is the time to do this if you’re not already. Payment history is the biggest score component. Nope, nothing hurts your score more than late or missed payments.

And the good news is, you don’t have to make a complete 180. Just make sure you get it all in on time — every time. It’s the same with credit cards, rent, utilities and any loans you may have.

You can even set up auto payments or alerts so you never get late. This won’t boost your score right away but it’s one of the best ways to build a strong financial foundation in the long run. And hey, who doesn’t want to feel like they have their bills paid?

Step 4: Use Credit As Little As Possible

This one’s a long one but it’s pretty simple. Credit utilisation is how much of your available credit you’re using at any given time. Lenders don’t like to see you max out your credit cards — they like to see you have some wiggle room.

The sweet spot?  Keep your credit utilisation below 30%. Even if you max out your card every month, having large balances will still hurt your score.

If you’re already over 30% don’t worry! Then just chip away at those loans one by one. If you’re paying more than the minimum on your credit cards it’ll get you there a little faster.

Step 5: Don’t Kill Old Accounts

A credit card you haven’t used in a while? Want to close it?  Resist the urge!  Your credit history is one of the biggest factors affecting your score and closing an old account will shorten that history.

You don’t need the card but leave it open anyway. Just put it in a drawer if you don’t want the temptation. The longer you’ve had credit the better your score looks to lenders.

Step 6: Create a Credit Mix That Works for You

Variety is the spice of life — and it’s also good for your credit score. Lenders want to see a variety of credit sources: credit cards, auto loans, student loans etc.

And no, I am not recommending you go out and get new loans just to increase your score. But if you’ve never used anything but credit cards consider a second line of credit such as a personal loan of modest size if it makes sense for your budget.

Again, don’t overdo it. You want your credit to be varied but still accessible. It’s all about balance!

Step 7: Be Smart About New Credit Applications

New credit — now this is where it gets tricky. When you get new credit (e.g. a credit card or a loan) the lenders pull your credit report. This is called a hard pull and it will ding your score for a few minutes.

The key word here is temporary. Hard pulls don’t cause long term damage but if you’re applying for credit from top to bottom it starts to add up. So think smart about when and how often you’re applying for new credit. In the weeks and months leading up to when you’ll be submitting your mortgage application you’re probably better off not applying for new credit if you’re buying a house.

Step 8: Use a Secured Credit Card

If your credit isn’t great a secured credit card might be a lifesaver. Secured cards are for consumers consolidating their credit. They work just like credit cards except you have to put money down as collateral. The best part?  Secured cards are reported to all 3 major credit bureaus so you can use them to build your credit score over time.

If you use the card responsibly — that is, on time and with minimal balance — you can build credit history and then move to an unsecured card.

Step 9: Be Patient and Persistent

Building credit doesn’t happen overnight. This is a long process but it’s worth it when you’re ready to write that mortgage check. All you can do is be consistent. So keep making payments, keeping up with debt and watching your score improve.

Remember, no two credit journeys are the same. You can build credit fast and you can’t. You don’t have to feel like you’re getting nowhere — just keep going.

Bottom Line: Your Credit and Your First Home

Home ownership is huge but it doesn’t have to be a non-negotiable decision. With a little planning and a lot of patience you can develop the credit to get the best mortgage. Whether you’re starting from scratch or fixing bad credit, any way you can work on your score gets you closer to that front door with your name on it.

So go ahead and start building that credit. The house of your dreams is waiting for you and with these tips you’ll be ready when the time comes.

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Becky

Meet the award-nominated UK lifestyle blogger behind Spirited Puddle Jumper – a mum of three living in South East London! Becky shares the real ups and downs of family life, parenting tips, and lifestyle inspiration, proving that being a mum doesn’t mean you stop being fun or having other interests! Follow along for honest insights into UK family life and opinions on a whole range of topics, from travel and food, to beauty reviews, home and DIY, business and health and wellness.