It’s many people’s dream to buy their own home, and it can often be the most financially significant decision someone makes. Due to its major costs, and benefits that can go along with it, there are many factors to consider before purchasing a home.
One of the most important considerations is your credit score, as this can be something that makes or breaks your ability to purchase a home. Your credit score is a report of your financial history, with a specific focus on your ability to pay bills on time and in full. This is vital when it comes to applying for a mortgage, as brokers tend to put a heavy emphasis on your ability to pay off the loan.
If you’re looking for a way to boost your credit score before you start the home buying process, follow these tips!
Track Your Score
Many individuals think that checking your credit score is a lot more difficult than it actually is. However, because you’re given access to free credit checks every year through major credit bureaus such as Equifax and TransUnion, this can make the process of monitoring your score extremely simple and timely. If you decide to create an account with their service, you can request your free credit score. While checking your score, it’s imperative to remember that you should only do this once, since, after your first check, you may need to pay a fee, and it will actually lower your score if done too frequently.
For home buying purposes, a credit score above 670 is considered good and can get you solid rates. If it’s too low (lower than 579) you may have trouble getting access to a mortgage. If it’s 800 and above, you may be able to get discounted rates.
Strengthen Your Savings
Not only is it important to boost your savings so you’re ready for a down payment, but having a solid savings account can help strengthen your score too. While this does not directly impact your score, it does have the benefit of giving you additional funds to pay off debt and prepare for emergency expenses.
Long before the home buying process, consider setting portions of your income into a savings plan. This should be separate from your account that is associated with the down payment specifically. Doing this can allow you to have a good amount of money set aside that can cover any additional expenses that could pop up in the process of purchasing a home. Having cash on hand to cover them can help prevent you from needing to take on additional debt.
Pay Off Debt
Tackling any major debts you have will be important, as this financial difficulty can greatly impact your credit score and future as a homeowner. Not only will reducing debt help your credit score, but it will also put less strain on your monthly payments, giving you more room in your wallet to cover any additional home expenses that come up, as well as property taxes and mortgage payments.
Making your monthly credit card and other debt payments on time is also going to be important. Be sure you have a way to get fast access to your checking account so that there are no delays when you make your payments. You can do this by using a payment app or signing up for early direct deposit through an online bank account. By using methods that help you obtain cash quicker, you can avoid worrying about getting a mark on your credit due to late payments.
Learning to be frugal and setting spending limits is never a bad thing, especially as you prepare to buy a home–having a habit of reducing costs is going to help you in the long run as a homeowner. One way you can do this is by creating a monthly spending budget or calendar. This will give you a limit on how much you are able to spend each month and prevent you from going into excessive debt and lowering your score.
Another way to set credit score standards is by limiting your overall usage. A good rule of thumb is to not spend more than 1/3rd of your available credit to bypass penalties for using your card too much. At the same time, you don’t want to avoid using it altogether, as frequent, consistent usage and payments are a surefire way to improve your score.
To stick to this rule, consider having one specific spending focus for your credit card. For example, maybe you’ll decide to only use your credit card to buy groceries or gas each month. Doing this gives you a safe way to utilize your card every month without overwhelming it and going over the 1/3rd rule. Financial habits like this can take a long time to build up, but they can often last a lifetime.
By following these tips and finding other strategies to boost your credit score, your path to homeownership is going to be paved with financial success!
Article compiled by PCSgrades staff