The new year is almost upon us and you probably already have an idea of some goal you’d like to achieve in 2023. Maybe it’s a healthy lifestyle, graduating from college, getting a well – deserved promotion, or purchasing a home!
If you’re considering home ownership in the future, get your credit healthy now to save in the long run.
Understand Your Score
Your credit score could mean the difference in thousands of dollars in interest over the lifetime of a home loan, but do you know what your score means and how it’s calculated? A score of at least 670 is considered ‘good’, anything above 740 is ‘very good’, and a score of 800 or better is deemed ‘exceptional’.
The FICO credit scoring model consists of 5 components:
New Credit 10% – How many accounts were opened in the last 12 months?
Credit Mix 10% – Is there a good mix of different types of credit accounts?
Length of Credit History 15% – What’s the average age of your credit accounts?
Amounts Owed 30% – What’s the balance on each account?
Payment History 35% – Are monthly payments being made on time?
How to Boost Your Score if it Needs Work:
Check Your Credit Report
Get a free credit report from each of the three major credit bureaus – you can do this once a year at no charge. 1 in 5 consumers have reported at least one error – dispute any errors with the reporting agency as a first step to boost your credit score.
Pay Monthly Bills on Time
This sounds so simple, and it is! It is so easy to get caught up in life but late payments can seriously affect your credit score over time! Set up automatic payments through your bank account to ensure monthly bills are being paid on time.
Pay Down (But Don’t Close) Open Accounts
If you’ve had problems in the past, reestablish payments and good standing on any accounts you can to pay down the balances. The longer you consistently pay down these accounts, the higher your score will eventually be.
When you reach a zero balance, closing the account may not be the right option. Closing credit accounts you’ve had a long history on can do more harm than good.
Keep Your Ratio at 30%
Your credit utilization ratio is the amount of credit you’ve used divided by the total amount available on that account. For instance, if you have a credit limit of $10,000 on a particular account or card, you want to keep that balance at or below $3,000, making your utilization rate stay at or under 30%. Lenders want to see that you consistently use less credit than you have available to you.
Keeping a 0% utilization ratio, or keeping an open account at a zero balance for an extended period of time can be worse than having a higher utilization ratio. A good rule of thumb here is to “Use, but don’t abuse” lines of credit. Keep accounts open that you will actually use, but pay them off monthly or bimonthly to keep that utilization ratio under 30%.
If you’ve ever made a New Year’s resolution, you know healthy habits take time before you see results; which is also true when making healthy credit changes. Start early to put yourself in the best possible position when shopping for a home; and remember the staff at MidCoast Title are happy to help you with all your title work needs.
