For most people, credit score isn’t something you spend much time thinking about. Especially if you are someone who is making good money and paying all your bills on time, but it never hurts to be aware of your current score and ensure you are maintaining it - even when you're not in the market for a home.
The reason your credit score is so important is because it tells lenders the basic story surrounding your credit. It essentially indicates whether or not you are a “good investment” by relaying how long you’ve had credit, your ability to pay back that credit and how much you currently owe.
Ideally, a credit score above 680 puts you in a good position to get financing. However, as a mortgage professional, I have seen hundreds of different financial portfolios and I know that the ideal credit score is not possible for everyone. While having a score of 680 will allow you to achieve the highest borrowing power, I have access to a variety of mortgage options to meet the needs of ALL my clients - no matter what your score is.
That said, if you are looking to improve or maintain your current credit score, there are a few tips I wanted to share with you!
The first step is to take a hard look at your current credit report and review your credit score for any old or incorrect information. Mistakes are more common than you think! If you find any errors, make sure to have them corrected or removed so as not to impact your future buying power.
This is a great rule for anyone looking to build up their credit. Lenders typically like to see 2 forms of revolving credit (i.e. credit cards, lines of credit, etc.) with a limit of no less than $2,000 and a clean history of payment for 2 years. If you’ve been advised to get a couple credit cards but have locked them in a vault where only a sorcerer’s spell can access them, you’re going down the wrong path. The goal is not just to have credit but to show potential lenders that you know how to use it responsibly!
Lastly, a great credit score means keeping a balance on your cards that is BELOW 30% of the overall limit. For a card with a limit of $2,000, this means having no more than $600 of it in use. If the balance is over 30% of limit and you don’t have the cash to pay it down or off, then simply request a limit increase! If granted, you are now at a lower utilization with no upfront cash needed. It is also a good idea to check if your credit card requires an annual fee and make sure you are paying that off too.
Once you have your credit score where you want it, it is important to maintain that score by following the above guidelines. Remember, even if you can only pay the minimum amount due, it is important to be making those payments and recognizing the requirements to keep your financial health in check.
If you do happen to be in the market for a home, and want to learn more about your credit score and borrowing power, please don't hesitate to reach out to me!