Credit Basics

Level up your credit with information, resources, and tools — and take an important step toward reaching life’s big goals, like homeownership.

Your credit score and credit history are factors in your homebuying journey.

Building a strong credit history may help you qualify for better mortgage loans with lower interest rates, so you’ll pay less for your home over the life of the loan.

Let’s start by learning more about credit

Your credit history and credit score are important factors when applying for a mortgage. The better your credit score, the more likely a creditor is to trust that you’ll pay them back. A strong credit history can help you toward your goal of homeownership.

Your credit score — or, more accurately, credit scores — is a rating of your likelihood to pay back debts, represented by a number between 300 and 850. It is assigned by each of the three credit reporting bureaus based on information provided by creditors. A higher score can help you unlock savings and benefits through better interest rates and more favorable loan terms.

The three primary credit reporting bureaus — Equifax, Experian, and TransUnion — issue a credit report that reflects your financial history. Your report includes items like:

Payment history
Types of accounts
Available credit
Total amount owed to creditors

You can request a free copy of your credit report from each of the three bureaus once every 12 months.

Pro tip!

To track your credit throughout the year, space out when you request your credit report with a few months between for each bureau. Remember your score may vary depending on the credit scoring model used by each bureau.

You can start building your credit by using a credit card in moderation. If you don’t already have one, you can apply for a credit card from a department store or for a secured credit card — which usually requires a cash security deposit — from a bank. These options tend to have a lower balance limit and a higher interest rate, so you’ll want to use them in moderation and pay the bills on time. By using credit responsibly, you’re establishing a credit history that can help you achieve your financial goals.

Consistent, on-time payments help establish your credit history and strengthen your score. When you apply for credit — such as for a car loan, an apartment rental, or even a mortgage — the creditor checks your credit history. Your on-time bill payments are a factor when determining whether to approve your loan application.

Simple steps to build credit

Building good credit is all about how you spend the money you earn and how much debt you take on. These steps can help you establish, build, and manage your credit.

CE Infographic Animated Mobile 1

CE Infographic Animated Mobile 2

CE Infographic Animated Mobile 3

CE Infographic Animated Mobile 4

Managing your debt

The amount of debt you have can make a big impact on your credit score. That’s why healthy debt management habits are important to help improve your chances of being approved for a loan — and benefit your overall financial health.

Credit usage

Your credit utilization ratio refers to the amount of credit you are using compared to the total credit you have available to you. It can be calculated by taking the total balance for all your credit cards and dividing it by your total available card limits.

Try to keep this ratio at less than 30% — in other words, use less than 30% of your available credit limit — to build and sustain a higher credit score.

Manage credit usage

Debt-to-income ratio

Your debt-to-income (DTI) ratio is the amount you owe on all outstanding debts compared to your income before taxes. It’s a key indicator that lenders use to understand whether you can afford a mortgage payment.

DTI is shown as a percentage. The lower the percentage, the more access you’ll typically have to new loans. Paying off existing debts and not incurring new debts help to lower this number.

Calculate your DTI

Frequently asked questions

There is no one definition of a “good” credit score. Your credit score might be sufficient for one lender but not another. A good credit score is the one that puts you in a position to get the credit you need. Once you achieve a good credit score, you will need to maintain it by continuing to manage your credit. Pay your bills on time, open only credit card accounts that you need, and keep your balances low.

It is possible to get a loan or credit card even if your credit score is low. However, you may be charged a higher interest rate or have a lower credit limit. You may also need to link the credit card to a savings account or provide a deposit. Avoid credit cards or loans with extremely high interest rates as it is particularly hard to pay the balance down.

Your credit score is only affected when a lender checks your credit score because you have applied for a loan or credit card. This is called a “hard inquiry.” “Soft inquiries” are when your credit score is checked by you or as part of a background check or when a financial institution offers you a pre-approved credit card or loan, which does not impact your credit score. Hard inquiries stay on your credit report for two years.

Credit scores can change daily as additional information is reflected on your credit report. Your credit score can be affected by changes to your account balance due to payments you have made or new charges. New hard credit inquiries can also cause your score to change. By closely monitoring your credit score, you can see when it changes. If your score decreases because of new credit charges you’ve made, you may be able to increase it again by making a payment.

Your consistent, on-time rent payments can be taken into consideration to help determine if you qualify for a home loan. Learn more about how you can make your rent count.

You can dispute any incorrect or inaccurate information with the credit reporting bureau that issued the credit report. It’s a good idea to request a free report from each reporting bureau every 12 months and check it carefully, as the information may be incorrect or outdated. Stagger your report checks so you can track your score throughout the year. Careful monitoring is the key to keeping your credit reports up-to-date and accurate.

Most delinquencies will be removed from your credit reports after seven years, with the exception of bankruptcy which may remain on your reports for ten years. When rebuilding credit after having bad debts, it’s very important to monitor your credit reports and, if the bad debts aren’t removed, file a dispute with the reporting bureaus. If you can, pay your bills on-time, as a consistent, long history of on-time payments can help you recover ahead of the seven years.

It is better for your payment history if you make small purchases on a regular basis on all cards. Then pay the balance off each time. If you keep the balances at zero without making purchases, you are not adding to your payment history.

More to explore

Manage and Monitor Your Credit

Your credit can affect your ability to buy, renovate, or refinance a home. Learn how to improve, manage, and monitor your credit.

Learn more

Make Your Rent Count

Thanks to a new program for renters, you could be one step closer to qualifying for a home loan if you've paid your rent on time for the past year.

Learn more

How to Know If I'm Ready to Buy a Home

Determine if you're ready for homeownership. Learn how to evaluate your credit score, your income in relation to your debt, and other relevant factors.

Learn more

Single-Family Business

Multifamily Business

Capital Markets

Manage Financial Uncertainty

Recover from a Disaster

Credit Basics

Your credit score and credit history are factors in your homebuying journey.