When you’re tackling a major home improvement project, one tool in particular can help you get the job done for less hassle and potentially at a lower cost: a good credit score.
“The better credit you have, the better offers you’re going to get, and the less you will pay overall for borrowing,” says Paul Golden, spokesman for the National Endowment for Financial Education. Specifically, a good score can unlock richer credit card rewards, higher limits and lower interest rates — all of which can smooth out your cash flow and save you money.
Here’s how a spiffy credit score can help you improve your fixer-upper.
Richer credit card rewards
With good credit, you can qualify for a credit card that gives you cash back, points or miles in the form of sign-up bonuses or ongoing rewards. That can chip away at some of your major home improvement expenses.
“Basically every single line item we try to put on a credit card when we can,” says Sherry Petersik of Richmond, Virginia, who co-founded the home renovation blog Young House Love with her husband, John. “[Those items] add up to way more cash-back rewards than an ordinary month of going to Target and getting groceries.”
Petersik and her husband are fixing up two historical houses by the beach. That means making some major purchases — for example, paying for a new roof, new siding, new walls, new electrical and plumbing. While earning rewards, the couple also avoid paying interest and late fees by paying those credit card bills in full and on time every month. By doing the same, you won’t just minimize costs; you’ll also build a positive payment history and keep your score healthy.
Higher credit limits
It’s easier to qualify for higher limits on credit cards when your score is shipshape. These high limits are helpful “because if I want to pay a contractor a large fee and get cash back, I want it to be within my limit,” Petersik says. Such charges can be in the thousands, she adds.
As a rule of thumb, aim to use less than 30% of your available credit on each credit card at all times. Your credit utilization ratio — or the percentage of available credit you use on revolving accounts — affects your credit scores. If your limit is relatively low but you have good credit and a steady income, consider requesting a credit limit increase.
Lower interest rates
When you don’t have enough cash on hand to cover home improvement projects in full, you may want to borrow money at a low interest rate — say, through a home equity line of credit, 203(k) refinance loan or a 0% APR credit card. With good credit, you’ll have more options.
When credit expert Barry Paperno and his wife were remodeling their bathroom and kitchen in Asheville, North Carolina, the contractor they wanted to hire was booked solid for months. Then, unexpectedly, he was available on short notice.
“At the last minute, he says, ‘Hey, I have a cancellation. Do you guys want to get started on it tomorrow?’” says Paperno, who blogs at Speaking of Credit. At the time, they didn’t have enough cash on hand to cover the entire project, he notes. But they were able to leverage their good credit to borrow money at low interest rates, including taking out a HELOC. With good credit, it’s easier to handle the unexpected, Paperno says.
“Things come up when you’re renovating, and you’ve got to anticipate that,” says Paperno, noting that estimates can change when new information comes to light — for example, if the contractor finds dry rot. “They’ve got the wall already torn out, so you’re going to tell them to stop?”
Before working on your house, do this
If you’re considering a home remodeling project, “the first thing you need to do is check your credit and know what your credit score is,” says Golden, of NEFE. You can access both your credit report and credit score online for free. Next, collect estimates for how much your project might cost, he recommends. With that information, you’ll be more prepared to tackle that project — or, if need be, fix up your credit before fixing up your house.