BiggerPockets

Keeping Your Credit Score in Check to Buy a Home with Purchasing Power

Thursday, October 22

For those wanting to buy a home with purchasing power, keeping your credit in check can sometimes turn into a guessing game.  Many times, we find ourselves questioning how paying the minimum balance will affect our credit, how paying late will affect our credit, how missing a payment will affect our credit and so on.  Therefore, I have compiled a list of answers to many of these questions using a 10-point scale to help you grade yourself.

Using this 10-point scale will help you keep your credit in check to help you buy your dream home with purchasing power. 

Making the minimum payment on your credit card (4) - All credit card companies like it when you take your time paying off your credit card.  The slower you pay it off, the better for them.  This won't necessarily affect your credit score.  However, you shouldn't make this a regular practice.  Paying only the minimum payment will just keep you in debt longer and you'll only end up paying more in interest.  Sometimes, the amount you end up paying in interest may end up being two to three times more than what you originally owed.

Making late payments (6) - Credit card companies are notorious for adding on late fees.  Payments that are made just a few minutes late will accrue late fees, interest charges and other penalties.  Depending on how late the payment is made, the credit company may report the delinquency to the credit bureaus, which will hurt your credit score.  

Missing a payment (9) - Credit card companies really get you when you miss a payment.  They slam you with late fees, interest charges and other penalties.  And, you will most likely see a rise in your interest rate.  You will also have to face a hard hit on your credit report of about 35% on your credit score.  This will result in paying more when trying to get a home loan or prevent you from getting one at all.  Missed payments not only have immediate consequences, but also long-term consequences, too.  Therefore, be sure to pay your credit card payment on time each month.

Purchasing on a card for rewards (1) - Paying off your credit card on time and in full just to grab extra rewards isn't necessarily a bad plan.  Just be careful playing this game.  Most people end up spending more money when paying with plastic.  So, it's easy to get in over your head.

Having too many credit cards (6) - Applying for multiple credit cards just to grab discounts on clothes or other merchandise will most likely have you letting bills slip through the cracks.  This also increases your chances of being a victim of identity theft.  A general-purpose card is all you should need.  It serves its purpose well.

Maxing out your credit cards (7) - Maxing out your credit cards will also have a serious impact on your credit score.  Around 30% of our score is based on "credit utilization."  This is the amount of credit you have used versus the amount you have available.  It also signifies a bad trend in your personal finances when you max out your cards.  Although maxing out your credit cards may not have an immediate impact on your financial pull, it will always show that you are not good at budgeting your money wisely.

Keeping up with your credit at all times will help when it comes to buying a home.  With good credit, you will have more purchasing power.

 

Keller Williams Arizona Living Realty with Realtor® Cheryl Westwood

Search Homes for Sale in Lake Havasu City, Arizona

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