Last month, I became a first-time homeowner. I bought a cute little condo just barely into the suburbs of Atlanta, and only ten minutes from the house where I spent my formative years. I’ve finally gotten all the furniture moved in, and I’m excited to finish decorating and organizing!
Last February, however, I wasn’t sure I would ever be able to become a homeowner, much less get approved for a mortgage just one year later. Why? Because my credit score was under 550.
I couldn’t qualify for a credit card, much less a mortgage! I ran up a low-balance credit card and defaulted on that and a gym contract in my early twenties. That made me afraid of credit, so I avoided checking my score or looking into my credit options for the next 7 years. In 2016 I finally made a commitment to myself to clean up my financial wreckage, and I’m proud to say that I accomplished that goal.
A few disclaimers before I jump in to the steps I took to repair my credit: I am not a banker and have no training in finance, and I started from having basically no credit rather than multiple derogatory remarks on my account. I also did have a lucky break that my only derogatory remark fell off my credit report in July 2016.
With that said, here’s what I did to boost my credit score from by almost 200 points in one year.
- Know your end goal. I set a very clear goal to get my credit in good enough shape to qualify for a mortgage. That meant that every step in my plan lead me closer to becoming an ideal candidate for a home loan.
- Research. I researched first-time home buyer programs and spoke with realtor and lender acquaintances about what I would need to qualify for a home loan besides a down payment. I learned that I would need at least two to three credit lines, and a FICO score over 680.
- Make a plan. I knew my only shot at getting a line of credit was a secured card, so I used my tax return for the refundable security deposit. I also made a plan for manageable spending on the card so that I knew I could pay it off every month. Initially that meant that I put just my utilities on the card. Because I was responsible with my payments, I was upgraded to an unsecured card after six months and my credit limit was doubled at the same time.
- Monitor your credit. I watch my credit with Credit Karma, and I monitor my FICO score through my bank once a month.
- Use the shopping cart trick. This trick allowed me to see exactly what store card offers I was prequalified for. From there, I opened two low-balance store cards that I use a few times a year when I need new clothes and pay off in full when the balance is due.
- Ignore extraneous offers. Once I had my three credit lines, a multitude of offers started coming to me in the mail – sometimes three or four per day! It was easy to get excited about all the opportunities, but I forced myself to focus on building credit with my three existing lines (although after I closed on my condo I did get a card that offers significant bonus and travel points).
These may all sound like simple steps, but I definitely didn’t know how much went into building credit before last year. Thankfully, I was starting from a place of no credit versus bad credit, and the one bad remark fell off my report in the middle of last year. Both of those circumstances contributed to the meteoric rise of my credit score, but I do believe that planning and researching are essential for responsible credit use.
Let me know if you have any credit management tips of your own!