11 Tips to Build Credit and Reduce Debt Before You Buy a Home | BECU

Does it feel like qualifying for a home lend is becoming more unmanageable ? Lenders have increased their scrutiny of mortgage applications, and although it might be more difficult to get a mortgage now than it was five years ago, the rigorous rules that are in station have helped Americans get a better handle on their finances. We want to help our members prepare for the road to homeownership. Let ‘s first gear take a look at some ways to give your credit grade a rise, and then we ‘ll move on to some strategies to eliminate debt .

6 Ways to Build Credit Before Buying a Home

Building your credit is one of the first base steps to fiscal health, and a must if you ‘re thinking of buying a home. Having impregnable recognition will allow you to get the best mortgage at the best pace, which means that you ‘ll pay less interest on your home over time. Paying less interest leaves more money in your pocket for other aspects of your animation ( like starting a family, or saving for retirement ) .
Your credit report contains all the information used to calculate your credit score, a three-digit phone number between 300 and 850 that gives lenders an objective judgment of your citation risk. The higher your credit score, the better.

1. Reality check 

It ‘s significant that you know your credit score, your debt-to-income proportion, and have a realistic gauge of your overall fiscal health before you start the work of buying a home. Start out by getting to know your credit score and your citation report. Check your credit report card on a annually footing and immediately right any inaccuracies that you spot .

2. Use your status as a renter to your advantage

When you rent an apartment, you can use your potent rental history as a credit reference when you apply for a mortgage if your even rental payments can be verified by a management company or landlord .
Consider paying your rip with a check or debit wag so that your trust statements reflect proof of your payments. besides, try to stay in one place quite than bouncing from one apartment to the following. That consistency will be discernible on your credit report and looked at positively by lenders .

3. Be picky about credit cards  

It ‘s important to build your accredit, but not all credit cards build your credit in the like means. Avoid department store credit rating cards, which are looked at negatively by lenders and can even hurt your citation score ( plus they normally have high interest rates, which means they ‘re not a estimable avenue to use to build your credit ) .
rather, stick to a trusted fiscal institution. Be certain to read the very well print on annual rates, fees and potential penalties .
As a penis of BECU, you may want to explore our credit wag. As a credit union, with no shareholders to pay, our members benefit from better rates and fees. In fact, BECU has one of the lowest rates in the nation .

4. Keep credit card balances low

If you max out your credit circuit board it could hurt your credit rating rate – evening if you ‘ve never missed a payment. If you keep a libra, we recommend keeping it at or under one-third of your credit specify .

5. Set up auto-payments 

A elementary step like setting up an automatic requital on your bills and debts will help you ensure that you do n’t miss a payment. A miss requital can appear on your credit report and negatively impact your credit score .

6. Find a partner 

It ‘s crucial to look for a fiscal institution that sees you as a spouse. At BECU we teach our members how to build better fiscal health. If you ‘re looking for ways to build credit you can register for our webinar that will you teach about credit reports, scores, and the doors that thoroughly credit can unlock for you .
Building your credit is authoritative, but it ‘s not the merely agent that lenders will look at when determining your eligibility for a mortgage .

5 Ways to Reduce Debt Before Buying a Home 

Reducing debt is another must-do when it comes to buying a home plate and increasing your fiscal health. In accession to your credit, lenders besides look at your debt-to-income proportion ( DTI ), a mathematical rule used to measure your personal finances .
Your DTI compares your debt payment to your overall income. Expressed as a percentage, your DTI is used by mortgage lenders to determine whether you will be able to manage your monthly mortgage requital. A low DTI is well – it shows that you have a good symmetry between your debt and income. But, if this share is high gear, then it can mean you have an unhealthy total of debt.

1. Create a realistic budget

The lone room to reduce your debt is to stop spending more than you have. If you ‘re having trouble cutting down on your spend, try keeping a outgo journal, and track your purchases and receipts .

2. Create a debt reduction plan

Look at your income and budget and determine how long it will take to pay off your debt, and in what order you plan to do thus. Try to pay down the debts that have the highest interest rates first, while still paying more than the minimum payment on your other debts .
Make an appointment to meet with a member adviser and set a realistic debt-reduction plan .

3. Create separate funds for specific goals

When you ‘re trying to budget, it ‘s good to keep your eyes on the respect. Designating funds for specific goals can truly help you stay focused and not overspend. For example, while saving for your home purchase, you besides might be trying to plan a vacation. Create savings accounts to help fund these goals- create a vacation fund for your trip, and see about starting another one for home improvement projects down the road .

4. Pay more than the minimum amount 

If you only pay the minimum sum on your credit card or loans, you ‘ll be in debt and ultimately spend more money on interest for the items you ‘ve purchased. Try to pay off the sum sum owed on all your credit cards each month, and if that ‘s not potential, put ampere a lot as you can toward your debt .

5. Be patient

Becoming financially healthy does n’t happen nightlong. It takes time to learn the skills and accumulate the cognition that ‘s needed to make heavy fiscal decisions and break old habits .

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Category : Finance

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