How to Build Credit Before You Buy a Home

Your credit score is one of several factors lenders may consider when reviewing a mortgage application. It can affect your available loan options, interest rate, and overall borrowing costs. Building stronger credit can take time, so it is helpful to start before you are ready to make an offer. You can use a reputable credit-monitoring service, such as Credit Karma, to review account information and monitor changes. For official reports from all three nationwide credit bureaus, visit AnnualCreditReport.com and follow each bureau's process for disputing inaccurate information.

How Credit Actually Works

Your credit history reflects how you have managed reported accounts and debts over time. Creditors may report account information to one or more credit bureaus, and credit-scoring models use that information to estimate lending risk. Different lenders and scoring models may evaluate the same information differently.

The Three Types of Credit

• Revolving credit: A line you draw on, pay back, and draw on again. Credit cards and lines of credit.
• Installment credit: A lump sum paid back in fixed monthly payments. Auto loans, student loans, personal loans, mortgages.
• Service credit: Accounts billed monthly for a service. Utilities and cell phone bills.

What Moves Your Score

• Payment history, approximately 35%: Paying reported accounts on time is generally the largest factor in commonly used FICO scoring models.
• Amounts owed, approximately 30%: This includes balances and revolving credit utilization.
• Length of credit history, approximately 15%: Older accounts may help, although keeping an account open is not appropriate in every situation.
• Credit mix, approximately 10%: Scoring models may consider experience with both revolving and installment accounts.
• New credit, approximately 10%: Multiple recent applications and hard inquiries may affect certain scores.

Building Credit With a Credit Card

For many people, responsibly using a credit card is one way to establish or strengthen credit history. Paying the statement balance in full by the due date can help you avoid interest, while late payments and high balances may negatively affect your credit profile.

Open Your First Card

• Secured card: Often designed for limited or damaged credit. It typically requires a refundable security deposit, and fees and approval requirements vary by issuer.
• Student card: Some issuers offer cards designed for eligible students. Approval standards, fees, and rewards vary.
• Alternative credit-building card: Some products use a linked deposit account or different underwriting standards. Review all fees, reporting practices, and terms before applying.

Once approved, use it for small everyday purchases you can already afford. Pay the balance in full every month.

Become an Authorized User

If you cannot qualify for your own account, a trusted family member or partner may be willing to add you as an authorized user on an established credit card. Some issuers report authorized-user accounts to one or more credit bureaus, but not all do. When an account is reported, it may affect certain credit scores, although the result depends on the account history, your overall credit profile, the scoring model, and the lender. Becoming an authorized user does not guarantee a score increase and should only be considered when the primary cardholder manages the account responsibly.

Potential Effect on Credit Age

If an older authorized-user account is reported, some scoring models may consider the age of that account when evaluating your credit history. However, scoring models do not all calculate account age in the same way, and mortgage lenders may review authorized-user accounts separately during underwriting. Do not assume that an older account will automatically increase your score or produce a specific result.

Potential Effect on Available Credit

If the issuer reports the account's credit limit and balance, the account may affect your overall revolving credit utilization. For example, adding a reported account with a high limit and low balance could reduce your calculated utilization in some scoring models. The opposite is also possible: a high balance, late payment, or other negative activity on the primary account could hurt your credit. Authorized users should not rely on this strategy as a substitute for paying down their own balances.

Potential Effect on Account History

Being added as an authorized user generally does not require the authorized user to submit a new credit application, although issuer practices vary. If the account is reported, it may appear as an additional account on the authorized user's credit report. More accounts do not automatically produce a better score, and being added to several accounts solely to influence a credit score may not help with mortgage underwriting. Ask a qualified loan officer how authorized-user accounts may be treated before relying on this approach.

Pay Every Bill on Time

Make at least the required minimum payment by the due date. Paying the statement balance in full can help you avoid interest on purchases when the card's terms provide a grace period. Autopay and account alerts may help prevent missed payments, but you should still review each statement for accuracy.

Keep Utilization Low

Credit utilization generally compares your reported revolving balances with your available revolving credit limits. Many financial educators suggest staying below 30%, but 30% is not a guaranteed cutoff and there is no single utilization percentage that works the same for every scoring model. Lower reported balances may help, provided you continue paying accounts on time and avoid taking on unnecessary debt.

Request a Limit Increase

After establishing a positive payment history, you may consider asking whether you are eligible for a higher limit. A higher reported limit may reduce utilization if your balances do not increase. Before requesting an increase, ask whether the issuer will perform a hard credit inquiry, and do not treat additional credit as additional spending money.

Building Credit Without a Credit Card

• Pay existing reported accounts on time. Consistent on-time payments may help establish positive payment history.
• Consider a credit-builder loan. These products are intended to help consumers establish payment history, but interest, fees, qualification standards, and bureau reporting vary. Confirm where the lender reports before opening an account.
• Consider optional bill-reporting services. Some services may add eligible utility, phone, or streaming payments to certain credit files. The effect varies by bureau, scoring model, and lender.

One caution: never take out a traditional loan purely to build credit. If you don't need the money, don't borrow it.

What Lenders Want for a Mortgage

1. Review your credit reports from all three nationwide credit bureaus and dispute information you believe is inaccurate. Corrections may or may not change your score.
2. Bring past-due accounts current when possible and continue making required payments on time.
3. Work on reducing revolving balances without draining funds needed for closing costs, reserves, or emergencies.
4. Speak with a loan officer before applying for new credit, closing accounts, moving debt, or making other major credit changes.
5. Avoid assuming that one strategy works for every loan program. Mortgage underwriting considers credit together with income, debt, assets, employment, and other factors.

Credit requirements vary by lender, loan program, property type, and the rest of the borrower's application. FHA-insured financing may be available to some borrowers with lower scores than certain conventional programs, but lenders may impose their own requirements. Indiana down-payment assistance program standards can also change. Review our first-time home buyer programs page and verify current requirements with IHCDA and a participating lender. Veterans can also review our VA home loan options; the U.S. Department of Veterans Affairs does not establish one universal minimum credit score, but individual lenders may.

Frequently Asked Questions

How long does it take to build credit?

Some FICO scoring models generally require at least one account that has been open for six months or more and at least one account reported within the previous six months. The time needed to improve a score varies widely based on the information in your credit reports and the scoring model being used.

What credit score do I need to buy a house?

There is no single score required for every mortgage. Minimums vary by lender and loan program, and approval also depends on income, debt-to-income ratio, assets, employment, property eligibility, and other underwriting factors. A higher score may improve access to certain loan options or pricing, but it does not guarantee approval or a particular interest rate.

Does checking my own credit hurt my score?

Reviewing your own credit report or score is generally treated as a soft inquiry and does not lower your score. A hard inquiry may occur when you apply for credit or authorize a lender to review your credit in connection with an application.

Should I pay off collections before applying?

Do not assume every collection should be paid immediately. Paying a collection may not remove it from your reports or increase your score, and mortgage guidelines vary. Ask your loan officer how the account may affect the specific loan program before making a payment or settlement, and keep written records of any agreement.

Will closing a credit card help my score?

Closing a card can reduce your available revolving credit and may increase utilization. However, keeping an account open is not always the best choice, especially when it carries fees, creates a risk of overspending, or no longer fits your needs. Speak with a loan officer or qualified financial professional before making major account changes ahead of a mortgage application.

Get a Read on Where You Stand

A qualified loan officer can review your credit profile, explain which factors may affect a mortgage application, and discuss possible next steps. No one can guarantee a particular score increase, approval decision, interest rate, or timeline.

Important Disclosure: Ryan Postell is a licensed real estate broker and is not a mortgage lender, loan officer, credit-repair organization, attorney, accountant, tax advisor, or financial advisor. This page provides general educational information and is not individualized financial, legal, tax, mortgage, or credit advice. Credit-reporting practices, scoring models, underwriting guidelines, rates, fees, and assistance-program requirements vary and may change. No credit-score increase, mortgage approval, interest rate, loan term, or timeline is guaranteed. Verify information with the appropriate credit bureau, creditor, IHCDA, and a qualified participating lender before acting.