Feb 8, 2023
While buying a home can be an exciting adventure, it also comes with a bag of anxieties. But one major concern should always top the list: maintaining your credit score. Not only can a good credit score open up opportunities to lower interest rates or waived fees, but it can also give you room to create your dream custom home with Overstreet Builders (wink!).
Developing healthy credit habits is essential if you want long-term financial success and stability... And who doesn't? So here are some tips to help you maintain a good credit score:
What is Good Credit?
The term "good credit" gets tossed around a lot, but what does it mean? This is the score that lenders use to evaluate your financial behavior and determine if you are a responsible borrower. And your score can range from 300-850; the higher your score, the lower risk you are to a potential lender. It breaks down like this:
- Bad Credit: 579 or below
- Fair Credit: 580-669
- Good Credit: 670-739
- Very Good Credit: 740-799
- 800+: Excellent.
There's also "no credit" which can be just as bad as having bad credit. This score type generally applies to people who are new to the credit market and have either never used a line of credit or haven't had any account open in over six months.
How is Good Credit Calculated?
Your credit score is calculated by five factors:
- Payment history (35% of your score)
- Amount owed (30% of your score)
- Length of credit history (15% of your score)
- Credit mix (10% of your score)
- New credit (10% of your score)
Each of these factors is weighed differently, and your score is calculated based on your credit report, which is a comprehensive record of your credit history. The higher your score, the better your credit standing and the more likely you are to be approved for loans and credit cards with favorable terms.
How to Maintain Good Credit in 5 Steps
Keeping your credit in check isn't as hard as you might think - it just takes a little attention and finesse. Here are 5 easy ways to maintain a good credit score:
1. Pay Your Bills On Time
This should really go without saying, but paying your bills in full and on time is the best way to ensure a good credit score. Try setting up automatic payments or reminders so that you don't forget!
2. Keep Balances Low
Credit utilization measures the amount of credit you're using compared to how much is available to you. It's important to keep your utilization below 30% to maintain a healthy credit score. So that means if you have a credit card with a $1,000 limit, try to keep your balance at or below $300.
3. Avoid New Lines of Credit
Every time you open a new credit account, it can temporarily lower your credit score. So although that 20% discount at the department store might be tempting, you may want to wait until after your home purchase to apply for new credit.
4. Avoid Closing Credit Cards
Closing an old credit card can actually hurt your score by lowering the average age of your accounts and decreasing the amount of available credit you have. So if you're not using it, just leave it open - you don't have to use the card.
5. Monitor Your Credit Regularly
People often wonder if checking their credit will hurt their score. But the truth is, checking your own credit doesn't hurt you at all - in fact, it can help you spot any suspicious activity that may affect your score. Plus, you're entitled to a free credit report from each of the three major credit bureaus once a year. So check it regularly and make sure:
- All the information is accurate
- There are no errors
- There is no fraudulent activity
How to Improve Good Credit
Improving your credit can seem overwhelming, but it's totally doable with a little guidance and determination. Here’s what you need to do to improve your credit score:
- Check your current score and look for errors
- Pay down your debt
- Limit hard inquiries
- Pay your bills on time
Start by obtaining a copy of your credit report to check for errors, because this is the fastest way to improve your credit score.
Then, focus on paying down your debt. Create a budget that allows you to make small payments toward any overdue balances each month until they are paid off in full.
Avoid inquiries that involve applications for credit cards or loans - these can be damaging to your score.
Finally, make sure you're paying all bills on time. Even one late payment can have a huge impact on your rating, so do whatever it takes to set yourself up for success and stay on top of all of your payments.
Those are the main strategies that will make the biggest impact, but here are a few more ideas to build your credit.
When it comes to maintaining a good credit score, the key is patience, diligence, and consistency. With these tips in mind, you'll be well on your way to establishing great credit history!
Feeling good about your credit score and ready to finance your next home? Consider building a custom home with Overstreet Builders! With years of experience and exceptional customer care, we'll be here to help you every step of the way. Contact us today to start your custom dream home journey!