Attention, Card-a-holics: Get Real!
If you're living life luxuriously and pegging your credit cards to the max, it's time to slow down before your home buying plans come to a screeching halt. All those big balances are going to make a BIG impression on your lender. It's time to start paying off those cards. The sooner you put your financial house in order, the sooner you can buy a house of you own.
Fixing It Don't Play the Numbers Game.
Let's say that you decide to "fix" your credit rating by paying off small balances on several high-limit credit cards. You cancel several cards and shift the balances onto one or two cards. That should look better to a lender, right? WRONG!
Shuffle Your Cards... The RIGHT Way.
Suddenly shifting all that debt to one or two cards raises your unpaid balances in relation to your maximum credit lines. To the credit-scoring system, it appears as if your financial situation has tightened. Again, you're much better off paying down those balances. How about throwing those pre-approved, "easy" credit card offers in the trash?
Hold Up Wait to Buy New Wheels.
Drive past the new car dealers in your old clunker and keep on driving! Couples should especially think twice about buying "his and hers" BMWs. To a lender, two new car loans will lock up too much of your income. The real luxury of owning an older car is it's paid off.
No Large Purchases Don't Buy Any Big Ticket Items.
Don't make any other big purchases for now, including furniture for the new home, big vacations, or sporting equipment, etc. Any additional debt will cut into your ratio, your debt-to-income ratio, that is. Basically, lenders say that homebuyers should spend no more than 36 percent of household income on debt, 28 percent of which is your mortgage payment with the rest going toward other debts.
Minor Fixes
If your credit needs only minor surgery, avoid quick fixes and do these simple things. But what if you need major repairs? Read on.
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