As you begin the journey of finding your dream home, often, credit scores are a part of the conversation. A credit score is one thing a lender uses to determine whether or not you qualify for a home loan. Other companies can also use it to figure out your track record of making payments on time and more. As you can probably tell, it is essential to keep your credit score in check. With so many companies using this number to determine whether they can ‘trust’ you, it’s vital to maintain good credit. In this article, you will learn more about credit, what makes up your credit rating, why it matters, how to check it, and tips on building credit and maintaining it.
How Credit Scores Work
Right off the bat, it is essential to note that you do not start with a credit score. If you’ve never had a credit card or taken out a loan, you’ll have no credit history. Once you begin to build credit, that’s when you’ll have enough credit history to have a number assigned. This score boils down to a history of purchases on credit and timely payments. Credit scores can display as a number or a letter grade using VantageScore.
One of the things that not many people understand is that there is a credit score range, and each range has its own scoring criteria. There are three different major credit reporting agencies that each have their scores. Because of this, you will want to track one of the scores from a single bureau for the best accuracy. You can typically get your VantageScore or your FICO from either your bank or your credit card company.
What Does Your Credit Score Consist Of?
When you are looking to maintain your credit, you first must understand the basis of the score. Your credit score is going to be dictated by several factors. One of the most significant factors is payment history. Your payment history is what lenders will stress the most. If you have a lengthy track record of making on-time and in-full payments, you’ll be less risk than someone with past due payments.
Another major factor is your credit history. If you’ve had credit cards for ten years and a track record of making payments and being responsible, you’ll be much less risky than someone who just got a credit card two years ago.
Your credit utilization determines the last significant factor. Credit utilization is essentially the total amount of available credit that you are using at any given time. Available credit shows you are responsible versus an individual who has met or exceeded their credit card limits. After all, if you are constantly maxing out your credit, the chances of you missing payments increases.
Why Do Credit Scores Matter?
Your credit score matters a great deal. Your score can dictate many things in your life, so keeping track of the score is pertinent. Believe it or not, but the difference in lifetime costs between someone with a poor credit score and someone with a good credit score can span six figures. If you don’t maintain your credit, you will pay a significant amount because of it. Whether you are taking out a loan for buying a car or a home, you’ll find that your interest rates are much higher. No lender will be willing to give you the money without taking on greater returns because they are taking on greater risk as deemed by your credit score.
How To Check Your Credit Scores:
Luckily, there are plenty of different ways you can check your credit scores regularly. One of the best ways is by signing up for a service like Credit Karma. When you sign up for a service like Credit Karma, you will have access to an overview of your credit, and you can request free credit reports. You can also request a free report from all of the three major credit agencies every year.
Tips To Build and Maintain Your Credit
1. Get a Credit Card Early
One of the best things you can do when you are looking to build your credit is to get a credit card. Ideally, you want to get one as early as possible. While some will tell you to stay away from a credit card, it wouldn’t be ideal. Getting a credit card and using it responsibly is one of the best ways to build your credit. That way, you can make on-time payments and prove that you are trustworthy for future loans. If you aren’t eligible to get a credit card because of a lack of credit history, ask someone who trusts you to become an authorized user on their account.
2. Don’t Max Out Your Cards
One of the biggest things you can do to harm your credit score is maxing out your credit utilization. You should try to avoid doing this at all costs. Instead of maxing out your cards, you should be looking to keep your credit utilization at a reasonable level. If your utilization is getting too high, you should make a payment to pay off your credit card to keep this level down. The higher your utilization, the riskier you are to a lender.
3. Pay Your Balance On-Time and In-Full
Prompt payments and in-full payments are a way to increase your credit score. Be sure to make credit card or loan payments both on time and in full. Paying for debt in this way also reduces the amount of interest a creditor will charge each month. It can also help prove you are trustworthy. Even a single missed payment can significantly drop your credit score. Therefore, you want to automate the process for every account you have open.
Ways To Leverage Your Credit
1. Better Rates
One of the best ways to leverage your good credit score is by taking advantage of better interest rates. You may even be eligible for 0 APR credit cards which can help you pay off debt or buy things without paying them off right away or accruing interest.
2. Credit Card Signup Offers
Another good way to leverage your good score is by taking advantage of new credit card signup bonuses. These companies are always competing for customers and are constantly incentivizing new users to sign up. You’re more likely to get approved when you have a good score.
As you can see, credit scores are important to pay attention to and to look to build and maintain constantly. Summit Way Realty is here to help you find your dream home and make smart investments. For other tips on real estate investing and more, give Summit Way Realty a call today!
