6 Ways to Boost Your Credit Score

An excellent credit score is the ultimate goal of the financially responsible consumer. Those three magic digits tell a story of accountability, good financial sense, and the ability to spend mindfully. A great credit score also unlocks doors for large, affordable loans; employment opportunities, and more.

Its significance notwithstanding, achieving and maintaining an excellent credit score is easier said than done. There is no quick and easy way to dramatically boost your score over a short amount of time, but you can take steps to increase your credit score gradually. Below, we’ve listed six ways you can start amping up your credit score today.

1. Pay your bills on time

Your payment history is the single most important factor in determining your score. A missed credit card payment can significantly impact your score and it can take months to recover the loss. Set a reminder a few days before your bill is due to ensure you never miss a payment.

2. Reduce your credit utilization ratio

Another crucial factor in your score, your credit utilization ratio refers to the amount of available credit you use. It’s best to keep your utilization under 30%, or even 10% if you can swing it. This means, if you have $50,000 of available credit, try to keep your usage below $15,000 at most and, ideally, below $5,000.

It can also be a good idea to accept offers of increased credit or to request an increase on your own, which can instantly bring down your credit utilization ratio. However, only go this route if you know you are not at risk of overspending as soon as you have more credit at your disposal.

3. Use your cards

Taking a pair of scissors to credit cards can seem like the perfect way to increase your credit score, but you need to use your cards to keep your score high. A great way to make sure you use your cards on occasion but don’t overspend is to charge fixed expenses, like monthly subscriptions, to your card. Just be sure to pay the balance in full before the credit card bill is due.

4. Work to pay down outstanding debt

If any of your cards are carrying a balance from month to month, showing that you are working to get rid of this debt can do wonders for your credit score. Maximize your monthly payment by trimming an expense category in your budget and channeling that extra money toward your credit card bill. Don’t be afraid to reach out to your credit card company to ask for a lower interest rate as you work to pay off debt. Finally, consider consolidating credit card debt with a personal loan from Advantage One Credit Union, which will help you get rid of your credit card debts and leave you with one low-interest payment to make each month.

5. Look for errors on your bill and credit history

A fraudulent charge on your credit card can bring down your score without your knowledge. That’s why it’s important to check your statements each month and to look for charges you don’t remember making. If you see anything suspicious, contact the credit card issuer immediately to dispute the charge. It’s also a good idea to get your free credit report once a year from annualcreditreport.com for a more comprehensive look at your credit usage and signs of possible fraud. 

6. Become an authorized user on another cardholder’s account

If you’re new to the world of credit, and you’re looking to thicken your credit file to build your score, becoming an authorized user on another cardholder’s account can be a great way to get results quickly. Team up with someone who has excellent credit and never misses a payment. Your partner’s responsibility will reflect well on you and help build your credit history and boost your score. 

Credit scores are a crucial component of financial wellness, but achieving and maintaining a high score can be challenging. Use the tips outlined above to start boosting your score today. 

Your Turn: Have you taken steps to boost your credit score? Tell us about it in the comments. 

All You Need to Know About Home Equity Loans

As you pay down your first mortgage or the value of your home increases, you develop equity. When you have equity built up in your home, borrowing against it with a home equity loan is a great way to tap into the money when you need it most. Many people take out a home equity loan to finance home improvements, pay for their child’s college education, cover unforeseen medical costs, and many other purposes. Here’s all you need to know about home equity loans. 

What is a home equity loan? 

A home equity loan (HEL), or second mortgage, is a secured loan that allows homeowners to borrow against the equity in their home. The loan amount is based on the difference between the home’s current market value and the homeowner’s outstanding mortgage balance. Home equity loans tend to be fixed-rate, while the typical alternative, home equity lines of credit (HELOCs), generally have variable rates and allow the borrower to withdraw funds as needed.

How is a home equity loan amount determined?  

Your primary mortgage is the amount you borrowed when you first purchased your home. Over time, as you pay down the loan and/or the value of your residence increases, so does your equity. You can take a home equity loan out against the equity you have built up in your home, essentially borrowing against your home’s value minus what you still owe on your mortgage. It’s important to note that a home equity loan is a second loan against your home. You’ll still need to pay your primary mortgage along with new payments for your home equity loan.

A lender will typically want you to have at least an 80 percent loan-to-value (LTV) ratio once your home equity loan has been approved. 

Interest rates on home equity loans 

Home equity loans typically have a fixed interest rate, making budgeting for the payments easy. The lender provides a lump sum payment to the borrower, which is then repaid over the life of the loan, along with a set interest rate. Both the monthly payment and interest rate will remain the same over the entire loan term, which can last anywhere from 5 to 30 years. If the borrower sells the home before the loan term is matured, the loan must then be repaid in full. 

A home equity loan can be a great choice for a borrower with a one-time or straightforward cash need such as a home addition, large medical expenses, debt consolidation, or a wedding. 

Are there any costs associated with home equity loans?

As with mortgage loans, there are closing costs associated with home equity loans. Closing costs refer to any fees incurred when originating, writing, closing, or recording a loan. These fees include application, appraisal, title search, attorney fees, and points. Some lenders may advertise no-fee home equity loans which require no cash at closing, but these will usually have other associated costs or a higher interest rate which can easily offset any gains. 

What are the pros and cons of a home equity loan?

There are several advantages to taking out a home equity loan to fund a home improvement project or a large expense: 

  • The amount of interest paid toward a home equity loan may be tax-deductible.
  • Interest rates on HELs are generally lower than those provided by credit cards or unsecured loans. 

Home equity loans do have some disadvantages as well: 

  • Using your home as collateral for the loan means risking foreclosure and the loss of your home if you default on the loan. 
  • If your home value declines over the term of the loan, you may end up owing more than your home is worth. 
  • You’ll need to pay closing costs and other fees when you take out a home equity loan. 
  • You may qualify to borrow more than you actually need and ultimately end up using more than planned, which of course you’ll need to repay. 

The hot real estate market has led to a boom in popularity for home equity loans. However, it’s important to weigh all factors carefully before determining if a home equity loan is best for your specific needs.  

Your Turn: Have you taken out a home equity loan? Tell us about it in the comments.

Why You Need to Be Financially Fit

Individual Americans spend hundreds of dollars a year and at least as many hours on keeping themselves physically fit but too many people neglect their financial health. Just like physical health, being financially fit is crucial to your well-being, your future and your quality of life. 

Here’s why being financially fit is so important and how you can overcome common barriers to achieving financial wellness. 

Financial wellness: a ripple effect 

Being financially fit is about more than just having enough money in your account to cover your expenses and put away something for tomorrow. Managing money responsibly will affect many aspects of your life:

  • Marriage. According to a recent study by AARP, financial problems are the second leading cause for divorce in the country. Money brings resentment and arguments into a marriage. In a study reviewing over 740 instances of marital conflict between 100 couples, money was found to be the most common topic couples argued about.  
  • Mental health. Money stress can severely affect your mental health, causing depression, restlessness, anxiety and more.  
  • Physical health. Stressing over finances can also directly impact your physical health, leading to recurring symptoms like headaches, fatigue, upset stomach, insomnia, high blood pressure and an increased risk of heart disease and stroke.
  • Work life. Being bogged down by money worries can make it difficult to focus while at work, which can bring down productivity levels and hamper career growth. In addition, prospective employers tend to review the financial wellness of new hires as part of their background checks; high rates of debt and a poor credit score can cost an employee a new job. 
  • Parenting. Managing money irresponsibly can mean not having sufficient funds to pay for a child’s education, private lessons, medical needs and more. 

What are the leading causes of money stress? 

According to a survey by Credit Wise®, 73% of Americans rank money issues as the number one stressor in their lives. Here are the top causes for financial stress: 

  • High-interest debt
  • Insufficient savings
  • Medical bills
  • Living paycheck to paycheck
  • Lack of retirement planning

Stressing over money is never fun. Stressing over money, when any of the above applies to you, takes on its own form of angst by adding a level of long-term anxiety. It takes time, sometimes years, to undo the damage of any of these stressors but it can be done!

Barriers to financial wellness and how to overcome them

We’re convinced: being financially fit is super-important. But what happens now? Why are 80% of Americans in debt?  Why do only 39% of Americans have enough saved up to get them through a $1,000 emergency? 

Unfortunately, while many people may understand that financial fitness is crucial to their wellbeing, there are several barriers that make it difficult to follow through on their convictions. 

First, many lack the basic financial knowledge necessary to responsibly manage their money. Second, many people mistakenly believe that budgeting, saving and being more mindful of how they manage their money are too time-consuming and tedious. Finally, some people may have fallen so deeply into debt, they’ve begun believing they will never be capable of ever pulling themselves out. 

Here are some simple steps you can take today to help you achieve and maintain financial wellness:

  • Get educated. There is no shortage of financial literacy available to the interested consumer, from financial literacy blogs to personal finance books, podcasts, online classes and so much more. Learning how money works, the power of a long-term investment and how much you’re really paying each time you swipe that high-interest credit card can help you make better choices. 
  • Have the money talk with your partner. Whether you’ve only been sharing expenses for half a year or you’ve been married more than a decade, it’s important to be on the same financial page as your partner. Talk openly and honestly, being careful not to be judgmental in any way, and discuss your individual and shared long-term and short-term money goals. Then come up with a plan for how you intend to reach them together. 
  • Pay all bills on time. If you can’t take aggressive steps toward paying down debt just yet, be sure to make the minimum payment on each credit card bill each month. 
  • Create a budget. Giving every dollar a destination makes it easier to spend mindfully and cut down on extraneous expenses. 
  • Start saving. There’s no such thing as a sum of money that’s too small to put into savings. Every dollar counts, and once you get the ball rolling, you’ll be motivated to pack on the savings until they really grow. 

You give your abs a great workout each day now it’s time to get those money muscles into shape! Follow the tips outlined above to stay financially fit at all times

Your Turn: What are your best tips for maintaining financial wellness? Tell us about it in the comments. 

What is Credit Card Interest and How Does it Affect Me?

Getting your first credit card is super-exciting. That small piece of plastic is a gateway to adulthood, and when used responsibly, it can be your first concrete step toward establishing sound financial habits to last a lifetime. Unfortunately, though, many teenagers and young adults don’t know enough about credit card interest when they open their first credit line (such as with a credit card) and end up deeply in debt — and quickly.

Don’t let this be you! Be sure to learn all you need to know about credit card interest and how it works before you apply for your first credit card.

What is credit card interest?

Interest on a line of credit is money the credit card issuer charges to the cardholder for borrowing money every time they use their credit card. The interest is generally set at an annual rate known as the annual percentage rate, or the APR. Credit card companies use the APR to calculate the amount of daily interest the cardholder is charged for purchases as well as the unpaid balance on the line of credit associated with the card.

Important credit card terms to know

Before learning how credit card interest is charged, you’ll need to know some basic credit card billing terms:

  • A credit card billing cycle is the period of time between credit card billings. Billing cycles can range from 20 to 45 days, depending on the credit card issuer. During that time frame, any purchases, credits and interest charges will be added to or subtracted from the balance.
  • When the billing cycle ends, you’ll receive your credit card statement, which will reflect  all unpaid charges and fees for this period of time.
  • The statement will also highlight the payment due date, which tends to be approximately 20 days after the end of the billing cycle.
  • The time frame between the end of the billing cycle and the payment due date is known as the grace period. If you neglect to pay your bill in full before the grace period ends, the outstanding balance will be subject to interest charges.

Calculating interest charges

To calculate your interest charge for a billing cycle, follow this formula:

Step 1:  Divide your APR by the number of days in a year to get your daily periodic rate, or the amount of interest your credit card issuer charges cardholders during each day of the billing cycle.

For example, if your APR is 18.5%, you’ll divide that by 365 to get your daily periodic rate of .0005%. (0.185 / 365 = .0005)

Step 2: Multiply the daily periodic rate by your average daily balance, or the balance you carry during each day of your credit card’s billing cycle, to get your daily interest charge. To find your average daily balance, look on your credit card bill. You can also determine your average daily balance by taking the sum of the balances at the end of each day in the billing cycle, and dividing that number by the total number of days in your billing cycle.

Using the numbers in the above example, if your average daily balance is $1,200, you’d multiply this number by your daily periodic rate (.0005%) to get a daily interest charge of $0.60. (0.0005 * 1,200 = 0.60)

Step 3: Multiply your daily interest charge by the number of days in your billing cycle.

Staying with the above example, if your billing cycle is 30 days, you’d multiply $0.60 by 30 to get an interest charge of $18 for this billing cycle. (0.60 * 30 = 18)

Avoid paying interest

Credit card issuers will only charge interest if you carry a balance from one month to the next. If you pay your balance in full before the grace period ends, there will be no interest charged. It’s a good idea to familiarize yourself with the payment due date on your credit card billing cycle and to set a reminder to pay your bill before it’s due whenever possible.

If you have a large outstanding balance and paying it in full at the end of the billing cycle is not possible, at the very least try to pay more than just the minimum payment each month. It’s also a good idea to avoid charging more purchases to your card if there is already an unpaid balance. Remember: A credit card purchase that is not paid off before the payment due date can mean paying for that purchase for months, or even years, to come.

Credit cards are a necessary part of life. Building a strong credit history can open the door to long-term loans and other financial opportunities, but neglecting to learn how credit card interest works can lead to a spiral of debt. Before opening your first credit card, brush up on your knowledge of how credit card interest works and how it affects you as a cardholder.

Your Turn: Have you recently opened your first credit card? Share your beginner tips for responsible credit card use in the comments.

Learn More:
magnifymoney.com
investopedia.com
finder.com
credit.org

The Importance of Being Financially Fit

Are you ready to stretch those financial fitness muscles? We hope so, because it’s time to get financially fit!

Being financially fit means living a life of complete financial responsibility. The Center for Financial Services Innovation (CFSI), also known as the Financial Health Network, defines four basic components of financial health: Spend, Save, Borrow and Plan. These components reference everyday financial activities. As such, every choice you make in terms of these four activities either builds or detracts from your financial fitness. Like physical fitness, you can beef up those fitness muscles a little bit more each day.

Being financially fit is crucial for a well-balanced, stress-free life. Here’s why (and how):

Expand your financial knowledge

A financially fit person is constantly broadening their money knowledge. They read personal finance books and blogs, attend financial education seminars and are aware of the evolving state of the economy. This enables them to make monetary decisions from a position of knowledge and power, leaving much less up to chance or luck.

Stick to a budget

A financially fit person knows that tracking monthly expenses is key to financial health. They are careful to set aside money from their monthly income for all fixed and discretionary expenses and to stay within budget for each spending category.

Minimize debt

A financially fit person is committed to paying down debts and seeks to live debt-free. Constant budgeting, ongoing financial education and planning ahead enables them to make it through the month, and through unexpected expenses, without spiraling into debt.

Maximize savings 

A financially fit person prioritizes savings. In fact, savings is a fixed item on their monthly budget instead of something that only happens if there’s money left over. This allows them to think ahead and build a comfortable nest egg or emergency fund. In turn, having a robust safety net means sleeping better at night knowing there’s money available to cover unexpected expenses or a change in life circumstances.

Maintain complete awareness of the state of your finances

A financially fit person knows exactly how much money they owe, the accumulated value of their assets and the complete sum of their fixed and fluctuating expenses. This awareness takes the stress out of money management, allowing them to make better financial choices.

Maintain a healthy credit score

A financially fit person knows that an excellent credit history and score is a crucial component to long-term financial health. They are careful to pay all bills on time, hold onto their credit cards for a while and to keep their credit utilization low. This enables them to qualify for long-term loans with favorable interest rates, which saves them money for years to come.

Help your money go further

A financially fit person does not waste large sums of money on interest charges for purchases made using borrowed funds via credit cards or loans. They live within their means and only use these resources for purchases they can actually afford, or for large, long-term assets, like a car or a house. This means they have more funds at their disposal to help build their wealth through savings and investments.

Create concrete financial goals

A financially fit person has long-term and short-term financial goals. This enables them to keep their focus on the big picture when making everyday money choices, empowering them to actually realize their financial dreams.

Achieve financial independence

A financially fit person is independent. They don’t rely on loans from friends or family members to get by, and they don’t need to pay with plastic at the end of the month because they ran out of money. Their well-padded emergency fund means they don’t depend on their monthly income to put bread on the table, either. By sticking to a budget, prioritizing savings and maintaining an awareness of their finances, they are strong, secure and completely independent.

Being financially fit means living a life without battling anxiety about getting through the month or stressing about the future. You can achieve financial fitness by committing to making choices in each of the four components of financial health (spend, save, borrow, plan) that are forward-thinking and help to build your financial wellness.

Your Turn: Why is financial fitness so important? Share your reasons with us in the comments.

Learn More:
femcove.com
doughroller.net
moneybites.com
forbes.com
cbsnews.com

HisandHerMoney.com

When two people with opposite money views marry, it’s the ultimate in “He said, she said.”

He wants to save every penny so they can afford their dream house within the next five years, and she would rather live it up today while pushing off their dream a little longer.

She wants to budget every dollar to track everything they buy, and he thinks they can trust themselves to keep within their spending limit without accounting for every single purchase.

He thinks golf clubs with a four-digit price tag are a reasonable want, and she thinks they’re a ridiculous luxury reserved for the very wealthy.

And on and on it goes.

For Talaat and Tai McNeely, a pair of high school sweethearts ready to take their relationship further, the money differences were more than just an occasional spat — they were an obstruction standing between the couple and marriage.

As the McNeelys share on their blog, hisandhermoney.com, here’s a sampling of some of the financial issues they were dealing with before they married:

  • Do we let our credit scores dictate if we are compatible for marriage?
  • How will our previous money habits play a role in our marriage?
  • Do we merge our finances?
  • How can we work together to become better at life and win with money?
  • Am I a loser because I have now made my debt problems my future spouse’s problems?
  • Can I change, or is my past really who I am?
  • Should I have a secret account just in case our money situation gets worse?
  • How will we purchase a home? Do we put it in both of our names and risk not having a low interest rate due to the lower credit score?
  • Do I have to take full responsibility for our finances simply because I’m better at it?
  • Will we have to rely on two incomes to run our home?
  • What will our lives look like five years from now?

Despite one partner being debt-free and the other carrying $30,000 in debt, the McNeelys decided to get married. They knew the financial road ahead could be bumpy, but they were prepared to weather the storms together for the sake of their relationship.

Today, after years of struggling to chart their own joint money path, the McNeelys are completely debt-free, have paid off their mortgage and run a 6-figure business online. They have learned enormous life lessons on their journey toward financial wellness, and they generously share these lessons on their blog, podcasts, videos and through their private community of couples seeking financial guidance.

The couple is passionate about helping others overcome their financial differences and build a better relationship and a better future together. Check out hisandhermoney.com to learn their secrets.

Your Turn: How do you and your partner deal with money differences? Tell us about it in the comments.

Learn More:
paychecksandbalances.com
hisandhermoney.com

Your Complete Guide to Using Your Credit Cards

Q: I’d love to improve my credit score, but I can’t get ahead of my monthly payments. SeptFeatured2020_credit-card-scam
I also find that my spending gets out of control when I’m paying with plastic. How do I use my credit cards responsibly?

A: Using your credit cards responsibly is a great way to boost your credit score and your financial wellness. Unfortunately, though, credit card issuers make it challenging to stay ahead of monthly payments and easy to fall into debt with credit card purchases. No worries, though; Advantage One Credit Union is here to help!

Here’s all you need to know about responsible credit card usage.

Refresh your credit card knowledge
Understanding the way a credit card works can help the cardholder use it responsibly.
A credit card is a revolving line of credit allowing the cardholder to make charges at any time, up to a specific limit. Each time the cardholder swipes their card, the credit card issuer is lending them the money so they can make the purchase. Unlike a loan, though, the credit card account has no fixed term. Instead, the cardholder will need to make payments toward the balance each month until the balance is paid off in full. At the end of each billing cycle, the cardholder can choose to make just the minimum required payment, pay off the balance in full or make a payment of any size that falls between these two amounts.

Credit cards tend to have high interest rates relative to other kinds of loans. The most recent data shows the average industry rate on new credit cards is 13.15% APR (annual percentage rate) and the average credit union rate on new credit cards is 11.54% APR.

Pay bills in full, on time
The best way to keep a score high is to pay credit card bills in full each month — and on time. This has multiple benefits:

  • Build credit — Using credit responsibly builds up your credit history, which makes it easier and more affordable to secure a loan in the future.
  • Skip the interest — Paying credit card bills in full and on time each month lets the cardholder avoid the card’s interest charges completely.
  • Stay out of debt — Paying bills in full each month helps prevent the consumer from falling into the cycle of endless minimum payments, high interest accruals and a whirlpool of debt.
  • Avoid late fees — Late fees and other penalties for missed payments can get expensive quickly. Avoid them by paying bills on time each month.
  • Enjoy rewards — Healthy credit card habits are often generously rewarded through the credit card issuer with airline miles, reward points and other fun benefits.

Tip: Using a credit card primarily for purchases you can already afford makes it easier to pay off the entire bill each month.

Brush up on billing
There are several important terms to be familiar with for staying on top of credit card billing.

A credit card billing cycle is the period of time between subsequent credit card billings. It can vary from 20 to 45 days, depending on the credit card issuer. Within that timeframe, purchases, credits and any fees or finance charges will be added to and subtracted from the cardholder’s account.

When the billing cycle ends, the cardholder will be billed for the remaining balance, which will be reflected in their credit card statement. The current dates and span of a credit card’s billing cycle should be clearly visible on the bill.

Tip: It’s important to know when your billing cycle opens and closes each month to help you keep on top of your monthly payments.

Credit card bills will also show a payment due date, which tends to be approximately 20 days after the end of a billing cycle. The timeframe between when the billing cycle ends and its payment due date is known as the grace period. When the grace period is over and the payment due date passes, the payment is overdue and will be subject to penalties and interest charges.

Tip: To ensure a payment is never overdue, it’s best to schedule a time for making your credit card payments each month, ideally during the grace period and before the payment due date. This way, you’ll avoid interest charges and penalties and keep your score high. Allow a minimum of one week for the payment to process.

Spend smartly
Credit cards can easily turn into spending traps if the cardholder is not careful. Following these dos and don’ts of credit card spending can help you stick to your budget even when paying with plastic.

  • Do:
    When making a purchase, treat your credit card like cash.
    Remember that credit card transactions are mini loans.
    Pay for purchases within your regular budget.
    Decrease your reliance on credit cards by building an emergency fund.
  • Don’t:
    Use your credit card as if it provides you with access to extra income.
    Use credit to justify extravagant purchases.
    Neglect to put money into savings because you have access to a credit card.

Using credit cards responsibly can help you build and maintain an excellent credit score, which will make it easier to secure affordable long-term loans in the future.

Your Turn
: How do you use your credit cards responsibly while keeping your score high? Share your best tips with us in the comments.

Learn More:
moneyunder30.com
npr.org
debt.org
creditcardinsider.com

 

Am I Really Ready to Buy a House?

Young black couple signs paperwork with agentQ: I’ve saved a down payment, narrowed my choices of neighborhoods and drawn up a wish list of what I’m looking for in a home, but I’m getting cold feet. How do I know if I’m really ready to buy a house?

A: It’s perfectly normal to feel hesitant about going through with what may be the biggest purchase of your life. To help put you at ease and to make sure you’re really prepared for this purchase, we’ve compiled a list of questions to ask yourself before buying a new home.

Can I afford to buy a house?
Before viewing properties, remember that purchasing a new home will cost more than just the down payment. Buyers also need to cover closing costs, which typically run at 2-4 percent of the total purchase, as well as moving costs, and possibly new furniture and renovations for their new home.

Can I afford the monthly mortgage payments?
Most lending companies will grant a loan to a home buyer if the monthly mortgage payments do not push the buyer’s debt-to-income (DTI) ratio above the recommended 43 percent. This means that the total monthly debt the buyer carries, including their mortgage, credit card, loan, and car payments, do not exceed 43 percent of their monthly income. You may want to work out the total for your pre-mortgage debt before applying for a loan so you have an idea of how much house you can afford.

When determining whether you can actually afford your monthly payments, though, remember that there’s more to home ownership than a monthly mortgage payment. Be sure to include calculations for taxes, insurance and a possible increase in utility bills. A mortgage lender should be able to provide some of these numbers for you.

Am I ready to settle down?
The average length of time that homeowners in the U.S. live in a house is only seven years. Buyers who don’t plan on staying in their homes long-term may end up incurring a loss. Consider factors like your career, family planning, changing demographics of a neighborhood and more when trying to answer this question. Experts advise buyers to only purchase homes they plan on living in for a minimum of five years.

Does buying a house in my neighborhood make financial sense?
Many Americans view home ownership as a rite of passage into adulthood, but that doesn’t mean purchasing a home always makes financial sense. In some neighborhoods, rentals are relatively cheap while houses sell for far more than they are actually worth. In these neighborhoods, buying a home may not be the logical choice, even if the buyer can easily afford the purchase.

Is my credit score high enough?
A fairly decent credit score is necessary to qualify for a home loan. Most lenders will only grant a home loan to borrowers with a credit score of 650 or higher. A score that doesn’t make the cut can be increased by being super-careful about paying all bills on time, not opening new credit cards in the months leading up to the home loan application, paying credit card bills in full each month and keeping credit utilization low.

Do I have a plan in place for repairs?
When a renter has a leaky faucet, they call the landlord and the problem becomes theirs. When a homeowner has a leaky faucet, it’s their own problem. They can either fix it or hire someone to do the job, but it’s a good idea to have a plan in place before the first thing in a new home needs fixing. If you’re handy enough to handle repairs on your own, you’ll need to be ready and willing to give up some of your free time on weekends to tend to things around the house. Otherwise, it’s best to have a tidy sum put away to pay for necessary repairs before purchasing a home.

Sometimes, an appliance or a system in the house will be broken beyond repair and will need replacing. Homeowners need to have enough money stashed away in their emergency fund or rainy-day account to cover these purchases, too.

Buying a first home is an exciting milestone that only happens once in a lifetime. If you think you’re ready to take this step, first make sure this purchase is the right choice for you at this time on a financial and practical level.

If you’re ready to get started on your home loan application, click or call to hear about our fantastic home loan options.

Your Turn:
How did you know you were ready to buy a house? Share your thoughts with us in the comments.

Learn More:
investopedia.com
thebalance.com
rubyhome.com
creditsesame.com
moneyunder30.com

How’s Your Credit?

Medium credit score displayed on a man's smartphoneGive your credit its annual review by ordering your free annual report from Annualcreditreport.com. Check your score and read through the report carefully to see if there are any suspicious charges, unfamiliar accounts or mistakes of any kind. If you find an error, be sure to dispute it and follow up on the mistake. You’ll want to close any inactive accounts as well, as they can drag down your credit file.

Keep that score climbing!

Your Turn:
How do you monitor your credit? Share your best methods with us in the comments.

Why Does My Credit Score Matter?

Woman holding her credit reportYour credit score is made up of three numbers, serving as an indicator of your financial history, wellness and responsibility. These three little numbers can spell the difference between approval and rejection for a mortgage, a job, a rental unit and so much more.
We have outlined how your credit score is calculated, why it matters and steps you can take to improve your score.

How is my credit score calculated?
There are three major credit bureaus in the U.S.: Experian, TransUnion and Equifax. Each one collects and shares information about your credit usage with potential lenders and financial institutions. Most lenders use this information along with the FICO scoring model to calculate your credit worthiness. Some lenders use the VantageScore model instead of FICO.

While there are several slight differences between the FICO and the VantageScore formulas, both scoring models look at the following factors when calculating your score:

  • The age of your credit
    How long have you had your oldest credit card? When was your first loan? An older credit history generally boosts your score.
  • The timeliness of your bill payments
    Are you paying all of your monthly bills on time? Chronic late payments, particularly loan and credit card payments, can drastically reduce your score.
  • The ratio of your outstanding debt to available credit
    The VantageScore formula views consumers with a lot of available credit as a liability, while the FICO formula considers this a point in your favor.
  • The diversity of your credit
    Lenders want to see that you have and have had several kinds of open credit. For example, you may be paying down an auto loan, a student loan and using three credit cards.
  • The trajectory of your debt
    Are you accumulating new debt each month, or slowly working toward paying down every dollar you owe?
  • Your credit card usage
    Financial experts recommend having several open credit cards to help boost your credit score, but this only works if you actually use the cards and pay off your bills each month. It doesn’t help much to have the cards sitting in your wallet.

How does my credit score affect my life?
Your credit score serves as a gauge for your financial wellness to anybody who is looking to get a better idea of how responsible you are with your financial commitments.
Here are just some ways your credit score can affect your day-to-day life:

  • Loan eligibility
    This is easily the most common use for your credit score. Lenders check your score to determine whether you will be eligible for a loan.
  • The larger the loan, the stricter the requirements
    A poor credit score can hold you back from buying a house, a car, or getting a personal loan at Advantage One Credit Union.
  • Interest rates on loans
    Here too, your credit score plays a large role in your financial reality. A higher score can get you a lower interest rate on your loan, and a poor score can mean paying thousands of extra dollars in interest over the life of the loan.
  • Employment
    A study by the Society for Human Resources Management found that 47 percent of employers look at the credit scores of potential employees as part of the hiring process.
  • Renting
    Many landlords run credit checks on new tenants before signing a lease agreement. A poor credit score can prevent you from landing that dream apartment or it can prompt your landlord to demand you make a higher deposit before moving in.
  • Insurance coverage
    Most insurers will check your credit before agreeing to provide you with coverage. Consumer Reports writes that a lower score can mean paying hundreds of dollars more for auto coverage each year.

How to improve your credit score
If you’re planning on taking out a large loan in the near future, applying for a new job, renting a new unit or you just want to improve your score, follow these steps:

  • Pay your bills on time
    If you have the income to cover it but find getting things paid on time to be a challenge, consider using automatic payments.
  • Pay more than the minimum payment on your credit cards
    Your credit score takes the trajectory of your debt into account. By paying more than just the minimum payment on your credit cards, you can show you’re working on paying down your debt and help improve your score.
  • Pay your credit card bills before they’re due
    If you can, it’s best to pay your credit card bills early. This way, more of your money will go toward paying down your outstanding balance instead of interest.
  • Find out if you have any outstanding medical bills
    You may have an unpaid medical bill you’ve forgotten about. These can significantly drag down your credit score, so be sure to settle any outstanding medical bills as quickly as possible.
  • Consider debt consolidation
    If you’re paying interest on multiple outstanding debts each month, you may benefit from paying off your debt through a new credit card that offers an introductory interest-free period, or from taking out a [personal/unsecured] loan at Advantage One Credit Union. This way, you’ll only have one low-interest or interest-free payment to make each month. (Note: If you’ll be applying for a large loan within the next few months, it’s better not to open any new cards.)

It’s crucial that you make the effort to improve and maintain your credit score. It’s more than just a number; it will impact your financial wellness for years to come.

Your Turn:
How do you keep your credit score high? Share your best tips with us in the comments.

Learn More:
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