So, credit scores. They’re kind of important, especially if you’re launching into the housing market. Your mom, dad, or other authority figures in your life probably told you to get a credit card sometime after you turned 18. Maybe you initially got one to build up a good score while you were still in a period of your life when you weren’t making big purchases. Even if you only used it to buy your weekly groceries and paid it off on time every month, depending on how soon after college or your life after high school that you decided to find a house of your own, you might not have built up enough credit to be in the best financial situation. What do you do? Here are some steps that you can take to ensure that your credit score isn’t something that will negatively affect your forever-home search.

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Step 1: Find out how Credit Scores are Determined

Know the basics before you dive in

So, you have this thing called a credit score, and you check it every once in awhile, but do you know how the score is calculated? If you’re learning this for the first time or need a refresher, let me help. A credit score is determined by five different factors:

Payment History (35%)

This one is pretty self-explanatory, but you should definitely ask yourself this question on a regular basis if you are going to get a mortgage in the near future: How often do I pay my accounts on time? Everyone has a bad month when they can’t pay what they purchased on credit back in time, but make sure that when you do have those bad times, you budget better the next month.

Amounts Owed (30%)

You start out with a really small amount of credit, maybe $300 or so, and when you pay your purchases back on time, you get a higher total amount of credit as the months and years go on. Remember that less is more, and when you don’t use your total amount of credit allotted to you each month, it sets you up to have an improved score.

New Credit (10%)

Whatever you do, try not to open too many lines of credit, especially at one time. This will negatively affect your score for sure. It’s just one of those things you have to keep in the back of your mind. Opening new lines of credit should be planned in advance.

Length of History (15%)

Remember that the longer that you have a credit card, the better off you are. This is usually why you’re told to get a credit card after high school or college because the sooner you get one, the better. And by the time you enter the housing market, you’ll be better off if you started building that score at a young age.

Types of Credit Used (10%)

While you shouldn’t open a ton of new lines of credit at the same time, it’s important to diversify your credit lines. The three main types of credit are revolving, installment, and noninstallment.

Step 2: Understand What Makes a Credit Score Good or Bad 

Know what you’re working with!

We’ve been talking a lot about credit scores, but what’s going to get you, as a borrower, a decent interest rate? Lenders use a type of credit score called a “FICO score,” but it’s still based on the five factors that we just discussed. The scores are on a scale from 300 to 850 (300 being the worst, and 850 being the most favorable). A credit score of 740 or above gets you the best interest rates on mortgages. If your score is below 620, it is difficult to get a loan but not impossible.

Step 3: Know how Your Credit Score Affects Your Search for a Home

Your credit score can make or break you

You may have heard this from your realtor, financial advisor, or friend, but your credit score is the number one determinant of the mortgage rate that you will get. Credit scores and mortgage rates have an inverse relationship. If your credit score is low, your interest rate on your mortgage will be high and vice-versa. Not only is your credit score the definitive factor, but it determines your home-buying fate. You probably won’t get a home loan at all if your credit score is bad enough. Some lending websites like The Lenders Network pledge to help set you up with a lender even if your credit score is low, but it’s not easy, and you definitely won’t get an amazing interest rate on a mortgage loan. This may sound ominous, but don’t worry, not all hope it lost yet.

Step 4: Improve Your Score

Hurry before it’s too late!

Be forewarned, this is not something that you can do at the last minute, especially if you know your score isn’t very high. You probably want to check your credit score and improve it if necessary at least a year before you start the home-buying process.

Don’t Close That Account

You may think that this is a sure-fire way to eliminate your debt, but it isn’t. In fact, it would probably make it worse. You need to focus on paying it off first and foremost, and until then, use the card sparingly.

Make Your Payments on Time

Okay, this one is obvious. Make sure you are doing what you can to pay your debt off on time. You can also increase your score by “cycling your credit,” meaning that you make frequent, small purchases and pay them off on time.

Remove Incorrect Information on Your Report

You can get free copies of your credit reports once a year. If you notice any information that has changed or is incorrect, follow the process on the site to get it changed.

These aren’t the only ways to see improvements in your score, but even if you do commit to these steps, you won’t see immediate results! Be patient as the time period that it takes to see an improvement varies depending on the reason you have a bad score.

Take these steps to ensure that your credit score is what you want it to be before you go out and search for your dream home.