Back in San Francisco in 2012, I was one of many NYC transplants desperately trying to find an apartment in a city that just didn’t have enough to go around. So many people were in the same boat that my husband and I began to see the same faces at weekend open houses. All friendly, but all beseeching — please don’t take this one.
Then, one day, we found a place. And all that stood between us and a coveted San Francisco apartment was our credit score. Would we be approved or rejected? Who could say? We knew our credit should be in good shape, but we were so desperate for approval after months of searching that we were in a near panic as we waited for an answer.
Then the property manager let out a long, low whistle and gave us our answer. We were approved. What’s more, she actually turned her computer — ever so slightly — and showed us our scores.
That was the first time I’d ever seen my credit score. Even though it was only a few years ago, these scores were shrouded in mystery. The only thing harder to figure out was what you would need to do to get a good score.
What worse feeling can there be than powerlessness in the face of a need as important as shelter? Luckily, you don’t have to go through that same need if you’re preparing for a big purchase in your life. That’s because you can now not only see your scores, but you can also see what goes into them.
So, if you’re preparing for a purchase that you’ll need to finance, read on. Here’s what you can do to prepare your credit and avoid the sleepless nights my husband and I endured in 2012, or the credit score dark ages as I like to call them.
How to Prepare Your Credit for a Purchase
Credit scores used to be shrouded in mystery but, finally, the curtain has been lifted and we can see what our scores (yes, we all have more than one credit score) are made of. Although there are two main players on the credit scoring block (FICO and VantageScore), the factors that influence your score remain relatively the same (though keep in mind that different credit scoring models weigh these factors a bit differently):
- Payment history
- Credit utilization
- Length of credit history
- Credit mix
- New credit
Together, these factors tell lenders how long you’ve been using credit, how good you are with different types of credit, and whether or not you’re getting close to overextending yourself financially. Now, here’s what you can do if you’ve fallen short in any of these areas:
- Pay off any past-due debt you might have.
- Dispute any errors you find on your credit report.
- Pay all of your bills on time.
- Make sure your credit card balances don’t go above 30 percent of your total credit limit.
- Keep old accounts open, even if you don’t use them much.
- Don’t apply for new credit until you’re ready to make a purchase.
- Apply for a credit limit increase if you’re getting close to being maxed out — but DON’T use any of that new limit. In fact, avoid making purchases on your credit card if you’re carrying this debt.
If you follow best practices like these, you’ll improve your credit for your next financed purchase and you’ll also establish practices that can help you maintain good credit for life.
But What If I Need Good Credit Now?
When my husband and I were searching for apartments, we didn’t have time to spare to improve our scores. And that might be how you’re feeling right now — especially if you’ve recently faced a situation such as a break down of your car.
There’s still hope. If you’re a car buyer, you can find out how to lease a car with less-than-perfect credit here. Or, you can search locally for bad credit car dealerships — just be sure to follow these tips for buying a car with bad credit so you don’t end up in a car that’ll cost you more than it’s worth.
But if you’re looking to purchase a home (not rent), you might want to go ahead and wait a few months until your credit scores improves. Given that your score determines credit approval and at what interest rate, it doesn’t take much of a change to drastically alter the amount you’ll pay by the end of a 30-year mortgage.
A few extra points on your score could be well worth it if they enable you to receive even a slightly lower interest rate on the mortgage. Some things are just worth waiting for.