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How a Good Credit Score Could Help You Save on Home Improvement Costs

Having a good credit score can be helpful for many reasons. But did you know that increasing your score might help you save money on home improvement projects? Here's how.

Identify Your Home Improvement Needs

When it comes to making improvements on your home, it's easy to stray down the path of "fun" projects: adding a fire pit in the backyard or knocking out a kitchen wall to accommodate a wine refrigerator, for example. Investing in these projects isn't always the best financial decision, however. If you have existing or growing damage that needs your attention—a roof that no longer holds water or a patio structure weakened by termite damage, for instance—you should give these projects priority to prevent further problems down the road. Once you have those out of the way, you can move on to more fun vanity projects.

When you decide which home improvement projects to tackle, figure out how much it's all going to cost by getting contractor quotes and researching material costs. Line up these costs next to your budget to see if you'll have enough cash to cover the new expenses. If it looks like you'll need to rely on credit to pay for your project, your next step is to ensure you get low interest rates and good terms on your loan. That's where a good credit score comes in.

Why a Good Credit Score Matters

Having a good credit score—a score of 680 or above, according to the FICO credit scoring model—will help you get lower interest rates on a loan. That means you'll pay less over time to borrow the funds for your home improvement project. A good credit score may also help you find a lender who has lower or fewer fees.

Types of Loans for Home Improvement Projects

If you have a good credit score and are considering taking out a loan for a home improvement project, you'll probably have several borrowing options:

  • 0% APR credit card: If you have good enough credit, you could get approved for a credit card with an introductory 0% annual percentage rate (APR) offer on new purchases. This will allow you to make purchases and pay no interest for a set period of time. Depending on how much you spend with the card, this savings could be considerable. Read the fine print, though, as the terms and conditions can vary depending on the offer. Make sure the 0% APR includes new purchases, for example, and not just transfers.
  • Personal loan: A good credit score could also make you eligible for a lower interest rate on a personal loan. Personal loans can be used for home improvement costs, and you may even find some personal loans marketed as home improvement loans. Unlike a credit card, which is a type of revolving debt, a personal loan is a type of installment debt, meaning you'll be issued lump sum you'll pay back in fixed installments over a set period of time.
  • Home equity line of credit (HELOC): A HELOC allows you to borrow against the equity you have in your home. A HELOC typically allows you to borrow up to 85% of your equity, so if you have $100,000 of equity in your home, you may get a credit line for up to $85,000 if approved. HELOCs are convenient for home improvement projects as they give you a line of credit that you can use as you wish, similar to a credit card. This allows you to spend as little as you want, lowering the amount of interest you have to pay back. Lenders typically want to see a score of 680 or better to approve you for a HELOC.

How to Improve Your Credit Score

To get approved for a loan with the best possible interest rate and terms, take time to get your credit score in good shape if it isn't already. Here are a few tips on how to get your credit where it needs to be and keep it there:

  • Make all your debt payments on time. Payment history is the most important factor in your credit score, so paying on time is crucial to maintaining a good score.
  • Check your credit reports and dispute any inaccurate information.
  • Make sure you're not using more than 30% of your available revolving credit.
  • Don't apply for a lot of credit in a short period of time.

Once you're approved for a loan and are getting ready to start your home improvement project, update your monthly budget to include your new loan payments and stick to it. To keep your credit score in good standing, avoid making any late payments.

If you don't know where your credit stands, consider getting a free copy of your credit reports and scores from Experian to see what's in your credit file. And if you're considering applying for a credit card or personal loan to finance your home improvement this year, check out Experian's CreditMatchTM marketplace, which can pair you with specialized credit offers based on your credit profile.

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