First step in buying an apartment: Get your credit score up

Think you're ready this year to go to the mat and finally buy an apartment in New York City? Your first order of business is to make sure your finances are in good shape.

When you submit an application for a mortgage, one of the first things the bank will do to decide whether you're lend-worthy is run a credit check. And the lower your numbers on a score of 1 to 850, the higher your interest goes—or you can't get in the game at all.

[Editor's note: A previous version of this post was published in January 2016. We are presenting it again with updated information for March 2024.]

For Fannie and Freddie-backed loans—which have a $1,149,825 limit for NYC in 2024—you’ll generally need at least a 620, and scores below 740 usually have an add-on cost, according to National Cooperative Bank (a Brick sponsor FYI). But loans insured by the Federal Housing Administration can accept borrowers with scores as low as 500, though it’s best to aim higher. (The average credit score in New York state was 721 in 2023, according to Business Insider).

While a small uptick in rates may not sound all that significant, would-be buyers should remember that a small difference in interest rates can turn into thousands of dollars over the life of a loan.

Find out your credit score before you start shopping around

Some banks will give you your credit score for free. You can also get one free credit report per year directly from the three major credit bureaus—Equifax, Experian and TransUnion. You can request that report from AnnualCreditReport.com, according to the U.S. Consumer Financial Protection Bureau.

You can also find out your score and read your full report from myFICO.com. FICO’s one-time, single-bureau credit report—their cheapest paid option—gives you 30-day access to one FICO score and a credit report from one of the three credit ratings agencies. For $59.85, you'll get 30-day access plus credit reports from all three major agencies. FICO also offers a subscription service, which gives you quarterly or monthly access to updated credit reports. 

Your report may be long—around 60 pages in some cases—so you want to set aside time to read it and make sure there are no inaccuracies. 

“There can be mistakes,” says financial planner DeWitte Kersh. “I always tell my clients that they have to be responsible for their FICO scores. If you suspect an error, you need to reach out to the credit card companies or lenders and try to get it corrected.”

Your credit scores are updated on a monthly basis, so it could take a while to get the inconsistencies worked out. 

What influences your credit score

There are five factors that influence your credit score, says Avani Ramnani, a financial planner with Francis Financial. One is your past payment history: the more bills you pay on time, the better your score. 

Another is the amount of money you owe. If you use a high percentage of your available credit, you can get a lower score, says Debra Shultz, vice president of lending at mortgage lender CrossCountry Mortgage.

The length of time you’ve had credit also impacts your score, with longer credit histories generally leading to higher scores. New credit—opening a lot of new credit cards—can lower your score. And lastly the type of credit can change your score. Having different types of credit such as credit cards and auto loans can increase your score, Shultz says.

If you're applying for a mortgage with your partner, the bank will look at the lower credit score when deciding whether to lend and at what interest rate to lend, Shultz says. If one partner has particularly bad credit, it may be advantageous for only the higher scorer to be on the loan while both stay on the property’s title, she added. 

Paying your taxes late won’t hurt your credit scores directly because the Internal Revenue Service does not report information to the credit bureaus, though not paying your taxes can lead to tax levies and liens that could impact your score later on, according to Experian. Credit bureaus also stopped including court judgements on your credit score after 2017, though they still keep tabs on bankruptcies.

Divorce can also be hard on your numbers, if your spouse fails to make loan or mortgage payments, Kersh says. 

“If you have a joint account and your ex has debt, that'll affect you,” he says. “Oftentimes, people who are getting divorced don't even know the other person is defaulting on a loan before they see their credit score.”

How to improve your score

If you want to improve your credit score, making timely payments is absolutely crucial. That's why you should set up automatic payments, and calendar reminders just in case there’s a mistake with a scheduled fee, Shultz says.

“I can't tell you how many times I have a client call me and say, ‘I had autopay set up and it was supposed to go through and it didn’t go through,’” Shultz says. “One late payment can really trash scores.”

Try to use no more than 30 percent of your credit limit in one pay period, Shultz adds. (If you have a card with a $10,000 limit, that means spending no more than $3,000). If you have consistently good credit, you can request that your credit card company raise your limit to reduce your percentage spend compared to that higher ceiling, Ramnani says. 

Alternatively, call your credit card company and ask when they report the balance and payment history to the credit bureaus. That way you can pay the card off, or at least the transactions above 30 percent of your credit limit, by that date without your higher usage impacting your score, Shultz says.

Also, you'll want to avoid making a large purchase before you close on the loan. Incurring any additional debt or opening up new lines of credit can lower your score, and even jeopardize your ability to get a mortgage, Schultz says. And try to pay off your debts as much as possible.

Why you should start cleaning things up early

“Usually, it takes a few months to see any significant difference in your credit score,” Ramnani says. “Therefore, we advise our clients to start working on this approximately one year before they think they might need to apply for a mortgage.” 

If you need to boost your score faster, don’t fret. Positive credit habits should start to impact your score as soon as they’re reported—usually within 30-day cycles, Shultz says. But if you need to pay down the balance on your card, or other debts, it's best to start early.

“We tell clients to take six months (before they plan to apply for a loan) and pay everything on time,” Kersh says.

Editor’s Note: A previous version of this story contained reporting by Lucy Cohen Blatter.