Whether you’re looking to rent or buy your next home, your credit score can make a big difference in the options that are open to you. Here’s why having a good credit score is so important in today’s real estate market and what you can do to start building excellent credit today.
What credit score do I need to buy or rent a home?
To rent a home:
In competitive markets like San Francisco or New York City, having excellent credit is crucial.
Landlords may sometimes require a minimum credit score to be able to rent in their buildings.
The general rule of thumb: the higher the monthly rent, the better the credit score you will need to qualify to rent.
To buy a home:
In general, your credit score should be above 600 in order to buy a home.
The higher your credit score, the better your chances of being approved for a home loan.
Build your credit score above 700 to avoid high interest rates.
I have almost no credit history. Does this mean I’m out of luck if I want to rent or buy a home?
If you’re a young adult just starting your professional career, it’s not unusual to have little or no credit. While this may limit your options in a home at the moment, it’s not a permanent situation. You can start building good credit today, and with the right information and tools, building an excellent credit score may be simpler than you think.
Here’s what you need to do.
Get a credit card and use it responsibly. A credit card is the most efficient way to build good credit, as long as you manage it properly. Having trouble getting approved for a credit card because your credit history is limited? Don’t give up. Find a company that thinks outside the box and sees you as more than just a credit score.
Pay your credit card bill on time every month. Once you have a credit card and start using it, commit to paying your credit card bill on time every month. On-time payments are the single most important thing you can do to build great credit. Sign up for automatic payments if your bank or credit card company offers it.
Pay off your entire credit card balance every month. To avoid accumulating credit card debt, pay your entire monthly balance every month, not just the minimum amount due. This will also help your credit score.
Keep your credit utilization low. To build credit as efficiently as possible, keep your credit balance well below your available credit limit throughout any given month. Go ahead and use your credit card as usual, but make a payment whenever your balance approaches 30% of your credit limit. 30% is the recommended threshold for building your credit efficiently.
Consider getting a second credit card. Managing multiple credit lines impeccably can be more difficult than managing only one, but if you commit to paying your balances on time and in full every month, having multiple accounts can demonstrate your creditworthiness and help your credit score.
Building excellent credit from scratch won’t happen overnight, but if you follow these guidelines, you may be surprised to see how quickly your score improves.
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