Credit Score Essentials

Everything first-time buyers need to know about credit scores - how they work, what you need, and how to improve yours fast.

Phase 2: Foundation Stage 2.1: Financial Prep

What You'll Learn

Your credit score is a 3-digit number that lenders use to decide if they'll approve your mortgage and at what interest rate. The difference between a 650 and a 750 can cost you $200/month ($72,000 over 30 years). Good news: You don't need perfect credit. You just need "good enough" - and there are proven ways to improve it quickly.

What credit score you actually need for each loan type
The 5 factors that determine your score (and how to optimize each)
30, 60, and 90-day action plans to boost your score
Common myths busted - what really hurts and helps your credit

Understanding Credit Score Ranges

300-579
Poor
580-619
Fair
620-679
Good
680-739
Very Good
740-850
Excellent
💡
Reality Check

The median first-time buyer credit score is 716. You don't need 800+. Most lenders start approving at 580-620 depending on loan type. If you're in the 680-740 range, you're in great shape.

Credit Requirements by Loan Type

Different loan programs have different minimum score requirements

FHA Loans

Most popular for first-time buyers

Minimum Score 580
Down Payment 3.5%
With 500-579 Score 10% down
Best For Lower credit, smaller down payment

Conventional Loans

Better rates for higher scores

Minimum Score 620
Down Payment 3-5%
PMI Removable At 20% equity
Best For 680+ score, lower fees

VA Loans

For eligible veterans & service members

Minimum Score No official min
Lenders Want 620+
Down Payment 0%
Best For Veterans with any score

USDA Loans

For eligible rural areas

Minimum Score 640
Down Payment 0%
Income Limits Apply
Best For Rural buyers, no down payment

What Makes Up Your Credit Score

Understanding the 5 factors that determine your score (and how to optimize each one)

💳

Payment History

35%
What it is: Your track record of paying bills on time. Late payments, collections, and bankruptcies hurt you here.
How to improve: Set up autopay for EVERYTHING. One missed payment can drop your score 50-100 points. If you have late payments, they hurt less over time - focus on perfect payments going forward.
📊

Credit Utilization

30%
What it is: How much credit you're using vs. how much is available. Example: $3,000 balance on $10,000 credit limit = 30% utilization.
How to improve: Keep utilization below 30% (ideally below 10%). Pay down balances or ask for credit limit increases. This is the FASTEST way to boost your score in 30 days.
📅

Length of Credit History

15%
What it is: Average age of all your credit accounts. Older accounts = better score.
How to improve: Don't close old credit cards (even if you don't use them). If you have no credit history, become an authorized user on a parent's old card - their history becomes yours.
✨

New Credit

10%
What it is: Recent credit applications and inquiries. Too many applications in short time = red flag.
How to improve: Don't apply for new credit 6 months before buying a home. When mortgage shopping, multiple inquiries within 14-45 days count as ONE inquiry.
🎯

Credit Mix

10%
What it is: Variety of credit types (credit cards, auto loans, student loans, etc.).
How to improve: Don't worry about this much. Having a mix is nice but not critical. Never take on debt just to improve credit mix - it's not worth it.

Credit Improvement Action Plans

Choose your timeline based on how soon you want to buy

1

Week 1: Check Your Credit Reports

  • Get free reports from AnnualCreditReport.com
  • Review all three bureaus (Equifax, Experian, TransUnion)
  • Look for errors, unknown accounts, incorrect balances
  • Dispute any errors immediately (can be done online)
2

Week 2: Pay Down Credit Cards

  • Identify cards with highest utilization
  • Pay balances below 30% (ideally below 10%)
  • Consider asking for credit limit increases (soft pull only)
  • Don't close any cards - keep credit available high
3

Week 3: Become Authorized User

  • Ask family member with excellent credit (740+) to add you
  • They keep the card; you get credit history benefit
  • Their payment history gets added to your report
  • Can boost score 20-50 points within 30 days
4

Week 4: Set Up Autopay Everything

  • Enable autopay on all credit cards (minimum payment)
  • Set up autopay for utilities, subscriptions
  • Ensure no missed payments going forward
  • One late payment can undo all your work
📈
Expected Results

10-30 point increase if you reduce utilization and fix errors. 30-60 point increase if you also become authorized user. Best for buyers who need a quick boost before pre-approval.

1

Weeks 1-2: Everything from 30-Day Plan

  • Check reports and dispute errors
  • Pay down credit cards aggressively
  • Become authorized user if possible
  • Set up autopay
2

Weeks 3-4: Negotiate with Creditors

  • Call creditors with late payments and ask for goodwill adjustment
  • If you have collections, negotiate pay-for-delete
  • Request higher credit limits on existing cards
  • Document everything in writing
3

Weeks 5-6: Strategic Debt Paydown

  • Pay off small debts completely (reduces account count)
  • Keep credit card balances at $0 if possible
  • If you have to carry balance, keep under 10%
  • Consider 0% balance transfer if it helps
4

Weeks 7-8: Final Push

  • Keep utilization low (pay cards mid-cycle if needed)
  • No new credit applications
  • No big purchases on credit
  • Let improvements age on your report
📈
Expected Results

30-60 point increase with consistent effort. 70-100+ points if fixing major errors or collections. Best for buyers who have 2-3 months before wanting pre-approval.

1

Month 1: Foundation

  • Everything from 60-day plan (reports, disputes, utilization)
  • Create detailed debt paydown strategy
  • Open secured credit card if you have limited history
  • Become authorized user on 2-3 cards if possible
2

Month 2: Acceleration

  • Aggressive debt paydown (target 50% reduction in balances)
  • Negotiate with all creditors for better terms
  • If you have collections, settle with pay-for-delete
  • Request credit limit increases every 60 days
  • Monitor score weekly to see improvements
3

Month 3: Optimization

  • Get utilization below 10% on all cards
  • Perfect payment record (90 days of on-time payments)
  • Use Experian Boost (adds utility/phone payments to report)
  • No new inquiries or applications
  • Let everything mature for final score boost
📈
Expected Results

50-100+ point increase with dedicated effort. Can move from "fair" to "good" or "good" to "very good" range. Best for buyers building credit from scratch or recovering from past issues.

Credit Score Myths: Busted

❌

MYTH: Checking your credit hurts your score

✅ REALITY

Checking your own credit is a "soft inquiry" and has ZERO impact on your score. You can check it daily if you want. Only "hard inquiries" (when you apply for credit) affect your score, and even then it's minor (usually 5-10 points) and temporary.

❌

MYTH: You need 800+ credit to buy a house

✅ REALITY

Most first-time buyers have credit scores between 680-740. FHA loans start at 580. Conventional starts at 620. You get the best rates at 760+, but the difference between 760 and 800 is minimal. Don't wait years trying to hit 800.

❌

MYTH: Paying off collections removes them from your report

✅ REALITY

Paying a collection changes it from "unpaid" to "paid" but doesn't remove it. It stays on your report for 7 years. However, newer scoring models (FICO 9, VantageScore 3.0) ignore paid collections. Always negotiate "pay for delete" BEFORE paying.

❌

MYTH: Closing credit cards improves your score

✅ REALITY

Closing cards usually HURTS your score. It reduces your available credit (raising utilization) and can reduce average account age. Keep old cards open even if you don't use them. Put one small subscription on them and set to autopay.

❌

MYTH: You should carry a balance to build credit

✅ REALITY

This is expensive nonsense. You build credit by using cards and paying them off IN FULL every month. Carrying a balance just costs you interest (16%+ APR). Use your cards regularly, pay the statement balance by the due date, and never pay interest.

❌

MYTH: Income affects your credit score

✅ REALITY

Your income doesn't appear on credit reports and doesn't affect your score. You can have $1M income with 600 credit, or $30K income with 800 credit. Lenders look at income separately when determining how much they'll lend you.

⚠️ What Actually Hurts Your Credit (And What Doesn't)

Things that HURT your credit:

  • Late payments (30+ days past due) - can drop score 50-100 points
  • Collections and charge-offs - major negative marks
  • Bankruptcy or foreclosure - drops score 100-200+ points
  • High credit utilization (over 30%) - immediate negative impact
  • Hard inquiries when applying for credit - minor, 5-10 points
  • Closing old credit card accounts - reduces available credit
  • Maxing out credit cards - even if you pay them off monthly

Things that DON'T hurt your credit:

  • Checking your own credit - soft inquiry, zero impact
  • Shopping for mortgages (within 14-45 days) - counts as one inquiry
  • Being added as authorized user - only helps, never hurts
  • Using your credit cards regularly - as long as you pay them off
  • Requesting credit limit increases - if soft pull
  • Having high income - doesn't appear on credit report
  • Having low income - doesn't appear on credit report
  • Age, race, gender, marital status, job - not factors in score

Quick Wins: Do These TODAY

📊

Check Your Credit

Get free reports from all 3 bureaus and look for errors

Impact: Identify issues
💳

Pay Down Cards

Get utilization below 30%, ideally below 10%

Impact: +10-50 points in 30 days
🔄

Set Up Autopay

Never miss another payment (most important factor)

Impact: Prevents -50 to -100 point drops
👥

Authorized User

Ask family with 740+ score to add you to their card

Impact: +20-50 points in 30-60 days
📈

Request Limits

Ask for credit limit increases on existing cards

Impact: Lowers utilization instantly
❌

Stop Applying

No new credit applications 6 months before mortgage

Impact: Prevents 5-10 point drops per inquiry

Key Takeaways

  • You don't need perfect credit - FHA starts at 580, Conventional at 620, median first-time buyer is 716
  • Focus on the big two: payment history (35%) and credit utilization (30%) - that's 65% of your score
  • The fastest wins: pay down cards below 10% utilization and become an authorized user
  • Never close old cards, always set up autopay, and stop applying for new credit before buying
  • Checking your own credit is free and has zero impact on your score - do it often

What's Next?

Continue your journey with these related resources

90-Day Credit Boost Plan Take the Readiness Quiz Calculate What You Can Afford
View Your Full Journey Map