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    Money on the mind and home-buying on the #goalboard: How to build winning credit.

     

    [First steps and things to know for setting yourself up for home purchasing success]
    Even if you’re a year or more out from when you think you may be in the position to purchase your first home — now is an appropriate time to start thinking about setting yourself for financial success.

    Credit score: If you were in the Willy-Wonka movie, this would be your pre-requisite golden key to unwrapping the golden ticket — and NOW is the time to start thinking about it. Your credit score determines your interest rate, and as discussed above, your interest rate affects your monthly mortgage payment — which is no small thing when it comes to something you could be potentially be paying for the next 30 years.  With that, there are three main factors that play into building your credit score.

    1. Length of credit history = 15% of score: If you haven’t opened up at least a few lines of credit yet — do so now! The longer your established credit history the better, which is why even an 18-year-old should open up a credit card ‘responsibly’ and start using it on their everyday purchases to build repertoire.

    2. Payment history = 35% of score: This may seem like an obvious one, but make sure you pay your monthly payments on time, every time.
    *To note for peace of mind:  a payment is only late after 30 days past due and the smaller the amount owed. the less of a ding it is on your credit score.

    3. Credit utilization = 30% of your score: To be in an optimal credit situation, you should not exceed more than 30% of your credit allowance. In other words, let’s say you have a credit cards with a $5,000 limit, you should never have more than a $1,500 balance. One way to improve your utilization is by one, having multiple lines of credit and two, larger credit allowances — which you can do by calling your credit card company and asking for an extension on your credit limit if they haven’t already routinely given you one.
    *Often credit card companies will ‘upgrade’ you automatically in hopes that you will accumulate larger balances.

    4. Other 20% =
    The mix of credit lines: (auto loans, vs credit cards, vs mortgage loans) — like all things in life, diversity is better and in this situation home and auto loans are looked at more favorably than credit card lines.
    *Auto and home loans are known as installment debt, which is better than credit card revolving debt.
    Credit inquires: Don’t apply for too many lines of credit too often. Every time your credit score is pulled, it dings your credit score. That said, if you are shopping rates for a home or an auto loan, all credit pulled within 30 days is lumped in as ‘one-pull’.

    Okay, so what does a score get you? More for your money.

    750+ = You’re A+ borrower and will get the most favorable interest rates out there

    700+ = You’re still in good hands and your interest rate will still be close to ideal

    680+ = You’re applicable for conventional 3% down payment loan

    620+ = You’re applicable for a conventional loan vs having to default to FHA

    580+= You’re applicable for a FHA loan with a 3.5% down payment

    500+ = Lowest cut off for being approved for an FHA loan, 10% down payment required

    *Leaving nuanced numbers aside, the higher the credit score the lower your interest rate.

    Call to action: Talk to a lender, they will help you with starting this process. Need a connection? Drop us a line — we’ll take good care of you.

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