First of all, shoot for perfection! 850 is the best score you can possibly get, and while it may seem completely out of reach for some, there are people who actually crest that credit mountain and reach the top. It’s the holy grail of credit scores, 850. On the widely used FICO credit scale approximately 1 out of every 200 people achieves perfection. Careful budgeting and attention to every aspect of your financial picture will help you get to and maintain that score.
If that seems a little too crazy, shoot for 720. If 850 is out of reach in a reasonable timeframe– reasonable being the maximum amount of time you want to wait before buying a home– aim for 720. This is often the magic number to get lenders fighting for your business, and in nearly all instances you’ll be offered the best interest rates.
Also, set up automatic payments. According to creditcards.com 35% of your credit score is taken from your credit payment history. You may have missed payments in the past, but you certainly don’t want to make that mistake while you’re trying to get homebuyer ready. Almost every creditor– your utilities, car payment, even your student loans will offer the option of automatic payments. This is the easiest way to ensure you never miss another payment going forward. Just remember to make sure there’s enough money in your account to cover what is coming out. If you’ve been busy moving funds into savings for your down payment you’ll want to set a reminder to move funds back to whatever account your automatic payments are attached to.
Don’t be afraid to refinance. You might end up buying a home before you get your credit score exactly where you want it to be. Especially if you buy your home with an FHA loan, their streamlined refinance program can potentially lower your payment without an appraisal, credit check or income verification. And you’ll want to watch your credit limits. Banks don’t look kindly on those who have used all of their available credit as it gives the appearance that you’re not living within your means.
The amount of available credit is the second most important factor in your score. Experts recommend you keep each card balance below 30% and your balance should be under $1,500. Of course, if you can keep it between 10-20% you’ll be in great shape, but don’t go below that. While it may seem that a zero balance would indicate that you’re financially savvy, banks like to see responsible credit management, which means using your credit cards and paying down the balance to a reasonable balance every month. Your credit matters when you want to buy or sell your home.
Please reach out to us if you have any questions regarding your credit score or with any of your other real estate concerns. We’re here to help you move with confidence!