One of the first things you must assess when building a new home is your current financial situation: how much cash you have saved for a down payment, your credit score, which bank you’re considering as your mortgage lender. These all play essential roles in determining whether you’re financially ready to build your dream home.
Mortgage lenders determine financial responsibility by the status of your credit score using the FICO method. According to the FICO credit scoring model, anything above 670 is considered a good credit score. The closer your score is to the maximum of 850, the greater the chance you’ll receive more favorable options and interest rates. Therefore, keeping your score in good standing is prominent.
Whether you’re building your credit from scratch or hoping to improve your current score, here are seven strategies to get your credit score in tip-top shape.
Never miss another due date! Minimize ongoing debt by setting up automatic monthly payments. Zeroing out your balances monthly avoids incurring interest charges and strengthens your credit score. Consistently making your payments on time also helps build credibility with lenders.
If possible, pay off your credit card statement balances in FULL every month. Reductions in credit card balances help lead to higher credit scores. If you’re unable to pay off your statement balances in full every month, make it a point to reduce high-interest debt first. For example, pay off your Capital One or American Express balance before your auto or federal student loans. Experts suggest keeping your credit utilization ratio below 30% of your credit limit at all times.
It’s exciting to pay off a credit line, but it’s typically best practice to keep the line open even if the balance is 0. Credit scores benefit from a long credit history. Therefore, closing established accounts will shorten the average age of your accounts and could potentially lower your overall credit score.
A new line of credit means a new hard inquiry on your credit report, which could lead to a decrease in your score. Avoid multiple hard inquiries and new loans you may have difficulty paying. Be smart and only apply for credit you genuinely need after doing ample research.
Get in the habit of tracking your credit score frequently, but remember building credit takes time. Consistently monitor multiple factors that influence your score, such as high balances, late payments, or too many recent hard inquiries. There are many ways to check and monitor your credit score for free through your credit card issuer, bank, or 3rd party apps like Credit Karma.
Budgeting will prioritize your spending and help you pay off your debt faster. Documenting your earnings allows you to make smarter decisions when tempted to spend on credit. Budgeting takes time and consistency, so find what works best for you and stick to it.
Your credit score can be drastically affected by credit fraud and credit repair scams. Credit fraud occurs when your personal account is hacked and new accounts are opened in your name. Always be sure to use unique passwords and keep personal information to yourself. Avoid making financial transactions on public Wi-Fi networks. Furthermore, stay clear of credit repair companies that promise to remove negative information from your credit report for a fee. Unfortunately, no company can legally erase information from your file. Avoid spending money on credit repair scams and instead improve your score by utilizing the steps above.
When building with Maronda, we recommend using our preferred lender, RMC Home Mortgage. Although the closer to 850, the better, we have options for credit scores as low as 550 (specific to each division and community).