Ready to move? Whether you want to rent or buy, you need good credit.
"You always want to check your credit before applying for a new home loan or a rental," says credit coach Jeanne Kelly, who advises consumers to get and review copies of their credit reports.
It can be a time-consuming process but it's worth it. You can get one free credit report every 12 months from each of the three credit reporting agencies through AnnualCreditReport.com. This is the only free site so don't be fooled by other sites that require you to sign up for credit monitoring.
"If you pull your credit, it will not count against your score," says Kelly, noting the majority of lenders use FICO scores, which range from 300 to 850 with a good score being 700 or higher.
Understanding your credit report starts with knowing your numbers.
Michelle Black, an author and credit expert at HOPE4USA, a credit education and restoration program blog, says FICO credit scores can be grouped into the following ranges:
300-639 = Poor credit
640-699 = Fair credit
700-759 = Good credit
760+ = Great credit
Still, renters and buyers need to know even more about their credit scores.
"Many consumers think the free score given to them by their credit card company is the same FICO score and it is not," says Tracy Becker, author and president of North Shore Advisory, a national credit repair company. "The one used by lenders is called the Mortgage Lending FICO score."
Consumers can buy their mortgage lender FICO score on MyFico.com.
Becker says the credit card FICO score is usually higher than the mortgage lending FICO score.
"This could cause great disappointment and cost when they find out they are further away from the score threshold needed for better pricing further away than expected," she says.
*Renting vs. Buying
While it's important for both renters and buyers to have decent credit, it's more important for buyers.
"A renter needs to have 'good' credit while those seeking mortgages should strive for 'excellent' credit to obtain the lowest interest rates," says credit card expert Max Frankel, CEO of MaxPoints, explaining a FICO score over 650 with on-time bill payment history is typically enough for renting.
He says buyers usually need a FICO credit score over 750 to get the lowest mortgage interest rates.
Landlords can use a variety of credit reports when considering a renter.
"These reports also include a landlord-tenant report that includes defaults and court cases that occurred on the applicants record in the past with other landlords," Becker says.
*Building Credit History
It's essential for renters and buyers to show credit history, especially good history. But not everyone uses credit.
A Bankrate study shows 63 percent of millennials, ages 18 to 29, don't even have a credit card. That's a problem when you want to rent or buy a property.
"A lack of credit history does not demonstrate that a consumer can pay their rent or mortgage each month," says Frankel, explaining that just one no-annual-fee credit card with on-time payments can significantly improve credit scores.
The Federal Trade Commission report shows 1 in 5 Americans have an error on at least one of their credit reports.
If you find a mistake on your credit report, dispute it right away.
"The truth is that credit reporting errors happen all the time and it is ultimately your responsibility to make sure that the information contained in your three credit reports is accurate," says Black, who warns that not checking your credit reports regularly is "like playing Russian roulette with your financial well-being."
*Boost Your Scores
Don't worry much about credit checks dinging your credit. Frankel says little inquires, are "completely normal and expected."
When a would-be landlord or bank checks your credit, it's known as a hard inquiry. Still each of those hard inquiries only drops a score by zero to five points and typically rebounds within a few months. Inquiry records drop off credit reports in two years.
Want to boost your credit score?
"Pay off credit cards early, before the statement closes, so that they can decrease the percent of available credit used, compared to the limit," says Frankel, noting 30 percent of a consumer's credit is calculated by looking at the amounts owed.
Becker, who's a certified FICO professional, recommends keeping balances at 10 percent of the aggregate limit of revolving credit cards, a month prior to applying for a loan. Doing so will give applicants a better chance of having higher credit scores.