Build Healthy Credit

When it comes to purchasing a new home, very few of us can do it without help. When qualifying for a new home loan or refinancing your mortgage, it’s a great asset to have a high credit score. A healthy credit score will allow you to qualify for better loans with better terms and interest rates. But how can you make sure your credit score is high enough?

Check Your Credit Score

While checking your credit score too often can hurt your credit, most banks will provide you with your FICO score for free without damaging your credit. Check with your bank to see if they have an enrollment program. Many allow you to enroll for free and see not only your credit score but also identifying factors that are contributing to potential problems or lower scores.

Certain activities can lower your score, and it’s best to avoid them if possible. If you have a high debt to income ratio or debt to credit ratio, that can affect your score. Closing multiple accounts can also reduce your score. One of the biggest factors contributing to damaged credit is late or rejected payments. Being aware of all your credit payment due dates is vital to keeping a healthy score.

Build Up Your Credit

If you don’t have much established credit or are just starting out, you can build up good credit in some simple ways. One of the best tips is to use your credit card to buy things you already have the money to pay for and then immediately pay the balance off. If you do this with items you purchase regularly, like your gas, groceries, personal items or home repair supplies, you can quickly build up healthy credit. Try to avoid carrying a balance over month-to-month and follow up with anything odd you see on your credit report. Try to resolve any problem areas identified there.

Plan Out Your Payments

The first thing you need to do to keep credit healthy is to make a financial plan. Make a list of all your debts and monthly expenses. Then take your income, subtract your monthly expenses, and divide the rest of the income you have available between your debt repayments. If you have different interest rates to pay, make sure you are putting the most money towards the debt with the highest interest rate.

Build Healthy Credit Habits

Payment history accounts for 35% of your credit score. Paying on time or early should be a top priority for the health of your credit. Make sure that you set up reminders or automatic payments where you can. Paying more than the minimum balance is also a great way to establish a better payments history. You should also prioritize the repayment of your debts by tackling the highest interest rates first.

Let’s say you have a student loan at 7%, a credit card at 15%, and you financed some home furnishings at 10% after the first 12 months. As you’re planning your payments, you can stick with the minimum payments on the student loan and the furniture, and pay more than the minimum balance on the credit card with the highest interest rate. Whenever possible, pay more than the minimum amount due. As you pay high interest rate debts off completely, you can apply those monthly amounts you budgeted for to your other debts to accelerate repayment.

Think of Small Ways to Save

If you can shave down your monthly expenses, you can apply more of your income towards building healthy credit. There are a lot of small ways to save money day-to-day. For example, take coffee in a reusable thermos in the morning. Even if you go to the coffee shop, many places offer a discount if you bring your own cup. You can also cook bigger meals at dinnertime to take leftovers with you to work for lunch the next day. Not only will you save money, you’ll eat better too. You can also save a ton on gas if you carpool for work or school.

Once You’ve Paid, Start to Save

Now that you’ve built up great credit and repayment habits, you can apply the same practices to saving. Take the income you normally reserved for debts and apply them to a savings account. You can build up a cushion to cover you in an emergency, save for a home down payment, or save for retirement. You can follow these tips to live a financially healthy life, making sure that you’ll be able to afford and qualify for your dream home.