Are you planning to buy your very own home soon? It has to be one of the most important decisions in your adult life.
Nonetheless, being a future homeowner requires a lot of guts. You’ll have to go through a lot of hula-hoops of challenges, namely financial, emotional, physical, and many more, before you get your hands on your coveted house keys.
If you’re eyeing to make a home purchase in the coming months, do note that one aspect trumps above all and which plays a crucial role in you being able to reach your goal or not. That’s your financial situation.
Your Finances 101
A house is among the biggest purchase you’re going to make in your lifetime. Unless you have a large amount of cash lying around available that you can use to buy your house, it’s highly likely that you’ll need to apply for a home loan to finance your home purchase.
When applying for a home loan, lenders will look into your overall financial health and all of its nitty gritty. This usually involves doing a credit check, looking into your tax returns and/or pay stubs, and the like before they give you an opportunity for a home loan, either fixed vs. adjustable rate mortgages and so on.
Indeed, navigating the home loan process can be tricky, but using your credit cards wisely can mean the world to your standing chances.
How To Use Your Credit Cards For Home Loan Success
As part of your credit report, how you use your credit will show whether you have financial responsibility or not and so on.
To help you out, here are some essential tips to help you use your credit cards effectively and increase your chances of home loan success.
1. Have A Deep Understanding Of Your Credit Report
Your credit report is important for almost every financial transaction that you make in your adult life. Primarily, it contains information that helps lenders and other financial institutions determine your creditworthiness and what loan terms and rates they’re comfortable giving you. Hence, the data indicated in your credit report should be accurate and you should know what they mean at the very least.
The credit score is the most prominent information indicated in your credit report. It’s a numerical figure that indicates how you’re great with handling your credit. Generally, having a much higher score can lead to better loan terms and lower interest rates. And if you’re planning to make a home purchase soon, you need to aim for a high credit score.
Thus, to boost your score, focus on the following key credit reporting components: credit mix, credit utilization, length of credit history, payment history, and so on.
You can reach out to a financial advisor to look into your current credit health and give you a rundown on your likelihood of getting approved for a home loan. You can also call your credit card company to provide you with a credit card report to look into how much your credit card spending was in the last few months, what are your current credit card lines, and so much more.
Finally, check your credit report regularly. If you find any errors, reach out to any of the top credit reporting companies immediately to have them corrected.
2. Settle Your Credit Card Bills On Time
Did you know that your payment history makes up a large chunk of your credit report? This includes your payment on your apartment for rent, utilities like your phone bill, and so on. Also, this includes your credit card payments.
Keep in mind that late payments can significantly impact your score and your chances of getting a home loan.
Moving forward, automate you credit card payments on your credit card bills. If you always pay your credit card bills on time, along with others, you’re showing to lenders that you’re financially responsible and reliable.
3. Strive For A Minimum Credit Utilization Rate
Credit utilization refers to the percentage of your available credit that you’re using. Ideally, you should keep this at a rate lower than 30%.
Say, you have a total credit limit of a thousand. To keep a low credit utilization ratio, it’s advised that you stick with a credit use of not more than three hundred.
Why? Having high credit utilization may signify to lenders that you’re being too reliant on credit.
To maintain a low ratio, try to pay off your balances fully monthly or keep them as low as possible.
4. Avoid Applying For A New Credit Card
Did you know that every time you sign up for a new credit card, a hard inquiry is made on your credit report? This can decrease your credit score temporarily. Multiple inquiries in a short period can signal to lenders that you’re desperately looking for credit, which can be a red flag. Stick with your existing accounts and focus on managing them well.
If you’re considering opening a new account to take advantage of a promotional offer or rewards program, weigh the potential impact on your credit score against the benefits. Sometimes, it’s better to forego the new account to maintain your credit standing.
5. Be Smart With How You Use Your Credit Card
Using credit cards wisely means being strategic about your spending and payments. Only charge what you can afford to pay off in full each month. This habit not only helps you avoid interest charges but also keeps your credit utilization low. Additionally, consider using credit cards with rewards or cash-back programs to get the most out of your spending.
To Conclude
Using credit cards wisely is a crucial part of preparing for homeownership. By understanding your credit score, dealing with your bills before your due, keeping your credit utilization low, and managing your debt responsibly, you can improve your chances of home loan success.
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