Navigating adulthood post-college can be tricky, especially from a financial perspective. One of the first major life choices you need to consider after graduation is housing. Whether you plan to rent or own an apartment, condo, or house, you should expect your lender or landlord to ask for your credit score. Your credit score indicates prior financial responsibility and too low of a score can negatively impact your options.
How to Check Your Credit Score
Before applying for any housing, you should have a good understanding of what your credit score is and how it compares to the average number.
Luckily, you are entitled to one free copy of your credit report every twelve months from three different nationwide credit reporting companies: Equifax, Experian, and Transunion. You can order your credit report online at annualcreditreport.com or call 1-877-322-8228. Prepare to provide your name, address, social security number, and date of birth to verify your identify.
This credit report will include your credit score and reasoning for your score. If you have unpaid medical bills or overdue credit card balances, they will appear on your report. You are allowed to dispute any items on your credit report that you believe are inaccurate.
What Will a Landlord or Lender Expect?
Before getting into the specific numbers landlords or lenders expect, it is important to reference the standard credit score range. (The following range is using the popular FICO score, however there are other scoring formulas in use. You will want to inquire of your lender or landlord which scoring convention they will be using to be prepared.)
Credit Score Range
- 500-579 = Bad credit score
- 580-619 = Poor credit score
- 620-679 = Fair credit score
- 680-739 = Average credit score
- 740 and higher = Great credit score
You can assume that if your credit score is categorized as “bad” or “poor”, you may have difficulty. However, most housing loans and landlords use 620 as a minimum. If your credit score falls below 620 and you plan to buy a house, you may be asked for 10 percent down payment, as opposed to the standard 3.5 percent. Some landlords may not rent to you altogether. If you fall below 620 you may want to consider investing in professional credit repair services and, if possible, delaying your move.
How to Increase Your Credit Score
If your credit score is lower than you would prefer, there are several ways to improve it. Your highest priority should be fully paying any outstanding bills on your report. Next, begin paying off any credit card bills or debt you have. If student loans have started to come in, pay (at least) the minimum amount on time, every month. If you have a credit card, make it your goal not to spend more than 33 percent of the available credit and pay off your full balance, every month.
If you do not already have a credit card, getting one is a recommended way to increase your credit score. You do not need several, just one to build a positive credit history. Look for credit cards that are created specifically for young people.
Considering a Co-signer
If your credit score is not high enough for your housing choice, many lenders and landlords will accept a co-signer. A co-signer is a person with acceptable credit who agrees to guarantee payment of your debt if you cannot do so. While this is a large responsibility, it is an extremely common practice. Consult your parents, other family members, or a trusted partner, then discuss your options with your lender.
Finding your first post-college home is an exciting experience for new graduates. In order to fully prepare yourself for the financial expectations involved, educate yourself on all things credit.