Tips on Building Your Credit as You Prepare to Buy a Home

One of the first steps to finding your new home, even before you start previewing homes with your Realtor is to get pre-approval from a loan officer so you know what you can afford. This is important so you don't waste time, or get your hopes up looking into homes that are out of your range.

Even before getting pre-approval, it is super important that you work on having good credit. This doesn't come by having no payments or loans. That can actually hurt you.

Building good credit to prepare for buying your next home can be established through some of the following simple tips:

1. Open a bank account

Opening a checking or savings accounts won’t impact your credit history, but it is pre-requisite to getting your first credit card, which is typically the beginning for most people building a credit history.

2. Get a credit card and pay it off every month in full

The way to start building your credit history and credit score is through having credit and paying it off in a timely manner. This is what sets you up as a trustworthy candidate for your next home loan.

Stay under 30% of your credit limit on your card each month. This helps your credit score a lot.

It's best, if possible to keep any credit cards open. Don't cancel cards, because this affects your overall credit score.

3. Put utilities in your name

Put your phone, cable, energy and utility bills in your name. But be sure to always pay on time. This also helps establish credit history.

4. Car loans and other loans

Establishing car loans and other loans will also build your credit history. It is important to pay these off in a timely manner, and in full. Having too many loans out at the time of working towards your home loan pre-approval could hurt your overall credit availability, but it can be helpful before you get to this stage. 

5. Know what is a good credit score

Everyone begins with a credit score of around 600. 

To get a home loan, most lenders would like to see your credit score be 620 or above. An excellent credit score, however, would be 720-740 or more. This will help you achieve better rates on your home loan from the bank. Having an excellent credit score could potentially save you thousands of dollars over the years of the loan.

6. Check your credit score

You can check your own credit score through the Federal Trade Commission and other sites periodically, to be sure that you are on track.