Improving your credit score can be a daunting task and if you are trying to do it on your own, do some research and get some advise from an expert. You may do more harm then good if you are not careful.
You sacrifice and work hard to pay off a credit card or two and get that liberating feeling that you're making progress. Then you check your credit score to see the effect of your admirable prudence, and you find the number has gone down, instead of up!
What you need to understand is that credit scores factor not just with the amount of debt you have; they also look at your credit utilization — the percentage of your credit limit that you're currently using. "That scoring factor is one reason your credit score could drop a little after you pay off debt, having low credit utilization (30% or less) is good; having no credit utilization may be harmful to your score."
What about paying off installment loans? "Paying off an installment loan, like a car loan or student loan, can help your finances but might ding your score," they report. "That's because it typically results in fewer accounts. (That's not a reason not to do it! Don't stretch out a loan and pay more in interest to save some credit score points.)”
Once you've gotten your balances to zero, guard your credit by making it easier on yourself to pay on time by setting up electronic reminders, monitor your credit report for errors, and dispute any you see. Someone's file may be mixed up with yours, or your identity may have been stolen — both of which can seriously affect your score.
And just because you cleared out some debt, don't get tempted to apply for more credit products in a short period of time , whether it's the purchase of a car, furniture or to take a trip. "Opening new credit lowers the average age of your credit accounts and involves a "hard inquiry" which can result in a small, temporary drop in your score, if you can, wait at least six months between credit applications.
Depending on your total available credit, it might hurt your score to completely close a credit account with a high credit limit. The fact that you have been offered a lot of credit means you have demonstrated proficiency, and that credit utilization thing comes into play again. To make sure closing one card doesn't impact your score, pay off balances on all other cards.
And lastly, if you've just qualified to buy a home and are waiting to close escrow, this is NOT the time to buy furniture on credit, especially if your qualifying ratios are borderline. Before making any large purchases on credit, consult your loan officer. There will be a final credit check before you close, and if your number has gone down, you may risk getting your approval nullified.
Here's some general tips to help you increase your credit scores.
1. Pay down your balances to 30-50% of available credit.
2. Increase your available credit when possible.
3. Transfer debt to other accounts to get a better balance of 30-50% on each account.
4. Build new credit
5. Build old credit, use your zero balance credit cards for monthly expenses that you pay off each month so you are not paying interest on the account.
6. Use a variety of different types of credit.
7. Avoid changing addresses and jobs frequently.
8. Clean up your credit report, you can do it yourself or hire a pro. It's estimated that over 40 Million Americans have errors on their credit report.
For some it seems like a no-brainer. Renting a home feels like throwing money away, offering no sense of ownership whatsoever. Buying a home is investing in the future. Even if it takes up to 30 years to pay off the loan, you have been LIVING in your investment.
According to a new study by Framework, however, there is more than meets the eye with first time home buyers, who see it as laced with blind spots and pre-loaded with anxiety — mostly because they went into it fairly blind, without enough education and information. The surveys were completed by two groups: recent first-time homebuyers and prospective first-time homebuyers.
The report says only 41% feel very well prepared for the home buying process, 57% worry they can't afford homeownership, 47% think the home buying process is "rigged" against the buyer, 44% fear making costly mistakes, and 55% said they could use an independent advocate to coach them through the process of home buying and homeownership. On top of that, more than half of first time home buyers in both groups said buying a home was more difficult than it should be.
So what does this tell the average real estate professional or mortgage loan officer? That they may have fallen short of making their buyers literate enough to have confidence in the process? I'd like to think I am not an average mortgage loan officer, my primary job is educating my clients through-out the process, providing information and answering their questions. While, once they had been through the process of buying a home, 64% of responders said they emerged from it knowing a lot more about the financial aspects of it, most wished they had taken some kind of class to prepare them for it.
When you think about it, those in the industry often don't do a great job in explaining aspects of homeownership not in their purview — things like paying taxes, how and when a payment can adjust, or promoting the idea of having a home ownership "slush fund" in the case of an emergency, such as flooding, a failing roof, or plumbing leaking underground. Of course, these aren't included in the warm, fuzzy feelings industry professionals care to project as they lead buyers through the process, but that doesn't mean first-time homebuyers shouldn't be encouraged to find classes. We have a team of professionals offering a Home Buyers 101 class for anyone interested. The next one is in April.. contact me for details.
CurrentMortgageRatesToday.org says that while the largest cost of owning a home will be your monthly mortgage payment, there are several other costs that you should be aware of when trying to find out how much homeownership will cost you — things like an HOA fee (and what it covers), property taxes, homeowner's insurance, and utilities. And then there is maintenance and repairs.
There are always risks inherent in any large purchase. But it's up to the potential homeowner to decide if it's the best financial step for them. Attending one of our Home Buyers 101 class will set you up for success in the home buying process. Learn about how to get qualified, learn about different loan programs, down payment assistance and how to budget for your purchase. What to expect as a new home owner, credit repair, and why it's important to have a home inspection before you purchase a home. Experts in Real Estate, Finance, Title&Escrow and a Home Inspector will be present. Contact me for details.
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