If you’re considering buying a home next year, it’s never too early to be thinking about your credit, according to Danny Gardner of Freddie Mac. Whether you’re hoping to buy a home in spring 2016 or looking further out, this article offers some simple steps you can take between now and then to help build and maintain good credit.
Having good credit is no accident. It’s the result of discipline and planning. Start today, and by the time you’re ready to become a homeowner, your good credit will pay off with better loan terms, lower interest rates, and greater financial opportunities in the future.
A good credit history increases the confidence of lenders and creditors when they loan money to you. When they see that you’ve paid back your loans as agreed, lenders are more likely to extend credit again. With good credit, you can borrow for major expenses – like a home – and you can borrow money at a lower cost, ultimately saving you money.
Your FICO credit score is one tool lenders use to gauge your creditworthiness. FICO scores can range from about 300 to 850 points – and your goal is to aim high. How high? Well, to give you an idea how much having good credit matters, in the third quarter of 2015, the average borrower of a loan bought by Freddie Mac had a FICO score of 751. That represents a slight drop since the peak of the housing crisis, but still means we’re in a lending environment where having a good credit score is incredibly important. Here are some steps you can take.
Open a checking and savings account. When you open a checking and savings account, try to stay above your minimum balance, never bounce checks, and make regular deposits.
Use credit cards carefully. Credit cards are convenient and easy to use, but using them recklessly can hurt your credit. If you allow your credit cards to reach high, unpaid balances, they can cost you hundreds or thousands of dollars in interest alone. On the other hand, if you pay them in full and on time each month, credit cards can help you build excellent credit and reap the benefits that follow.
Establish credit independently. It’s important for both partners in a marriage or a relationship to establish their own credit to help achieve financial goals and to protect against unforeseen circumstances like death, divorce, or other life changes. Partners should regularly discuss household and personal expenditures to ensure that neither has an excessive amount of charges that cannot be repaid.
Honor your promise to pay. It’s essential that you honor your promise to make your credit payments on time and in the amounts scheduled. That includes your credit cards, auto and student loans, utility bills, medical bills, etc. Contact your lender or creditor immediately if you are having trouble making payments.
