Did you know that there is a misconception that having a balance on your credit card from one month to the next can benefit your credit score?
That is not true, the ideal is that you pay your credit card in full each month. Carrying a balance will not help your credit scores. All it will do is cost you money in the form of interest.
-The lower your utilization rate, the better it is for your credit scores. The utilization rate is calculated by dividing your monthly account statement balance, the amount shown on your bill, by the loan limit.
However, it can be strategic to lower your utilization rate if you pay the bill before your statement is generated.
For example, if you have a total credit limit of $ 5,000, spend $ 2,000 on your credit card and pay $ 1,500 of that expense, before your credit card statement is generated. Your statement will only reflect $ 500, therefore your utilization rate will be considered 10% and not 40%.
-It is better to pay your credit card balance in full each month.
-If you are trying to establish a strong payment history, we recommend the following:
You can make small credit card purchases each month, paying the balance in full and making sure all payments are made on time.
If you can’t pay the full balance, keep it as low as possible.
You should never carry a balance of more than 30% of your credit limit on one card or in total. The lower your balances, the better it will be for your credit scores.
Pay the credit card bill before the statement is generated.
6 Strategies to Improve Your Credit Before Buying a Home
Something that can negatively affect the decision to purchase a property is a low credit score. The credit score is a three-digit number that in the American economy has a great importance and talks about how we manage our debts, our financial commitments. For example, it is very common for people who pay in cash, even with excellent income, to have low credit scores, because the important thing is not only how much income a person generates, but how that person manages their credits.
Most people don’t pay much attention to their credit score until they need to make a big purchase or take out a loan. For most of us, real estate is one of the largest investments we can make; And, a loan, in many cases, is the only way to achieve it.
When it comes to financing, a low credit score could lead to:
Higher interest rates
More time to be approved for credit
More proof of income
A higher initial (down payment)
The rejection of the loan by the eventual lender.
6 key points to improve credit:
- Balance: Knowing what your score is is the first step and the most important recommendation is that you pay the balances you have on all your credit cards. This helps increase your score. It’s okay to use one of your credit cards, but always make sure to keep your monthly balances as low as possible. Experts recommend not using more than 30% of your available credit to maintain very good credit. According to the Federal government, 3 free credit reports are allowed per year. You can get this information online, but be careful, many sites that are not “associated” with the Federal Government may attempt to charge you for this report.
- Pay on time: If you really want to increase your credit score, this is another effective way to achieve it. While it may be easier said than done, it’s important to make sure that all payments to every credit card and loan you have are made on time. After 15 days of delay in the payment, it begins to reflect negatively in the credit.
- Do not close accounts: As we said before, pay all your credit cards … But do not close any of them until you have applied for your mortgage. Canceling or closing a credit card can have a negative effect on your credit. Paying off your cards and keeping your line of credit open can increase your chances of getting your mortgage.
- Open new accounts: Opening new credit card accounts can quickly improve your credit score. If you don’t make any purchases on your cards, including the new one, your average credit usage will drop and your credit score will go up.
- Big purchases: Don’t make big purchases before applying for a home loan; This includes, but is not limited to, going on long and / or expensive vacations, buying a car, and anything else of value. Those fees can make your credit look weak.
- Planning: Improving your credit score is not something you can do overnight. Credit repair can take months. So be patient and plan ahead.
