Credit Card Advice For First Time Home Buyers
By Greg Roy
In our modern world cards have become virtually a necessity. Consumers cannot book an airline flight without a card. Nor can they rent a vehicle without one. And while it is possible to make purchases online without a card, it is time-consuming and a hassle.
While the vast majority of the population has at least one card, it certainly is not the vast majority that use cards to their advantage. Like prescription medication, cards can be very beneficial. But also like prescription drugs, cards can bring great harm to the user when abused.
There are many predatory sharks swimming in the card oceans. It is critical for first time home buyers to apply sound, savvy financial management skills in their use of card accounts. Your very ability to qualify for a mortgage on your first home will depend upon it.
Here are some simple-to-understand but difficult-to-follow guidelines for the best use of cards. The word best in this instance means most financially prudent, or the most beneficial to your overall financial health in the short, medium and long term.
1. Don't use cards to finance the purchase of consumer toys. While some cards provide an interest rate that is reasonable, most don't. Interest can be very, very costly. The bottom line is that if you don't have the money to purchase that latest electronic device that you want, you shouldn't charge it on your card. Doing so can be very habit forming, and will burden you with excessive debt. The process of qualifying for a home mortgage involves meeting certain debt to income ratios. The less card debt that you have, the more easily you will be able to meet those ratios.
2. Pay off your entire card balance every month. This is so important and so beneficial, yet so few people do it. The ones that do are the ones that have mastered financial self-discipline and reap a lifetime of rewards. Have you ever seen car dealerships advertise zero-interest loans on certain vehicles. While the offers are valid, most people don't have a score high enough to qualify for the teaser rates. And that's what they are: teaser rates. You may not qualify for the zero-interest deal, but even if you don't, the dealer got you into the showroom to find out. And that is the biggest hurdle in selling you a new car. However, if you do pay off your card balances every month, you will likely develop that very high score. Not only will you qualify for the best rates on your car financing, you'll also qualify for the best rates on your home financing. It's win/win in all cases.
3. Get your card portfolio established, then leave it be. There are very good reasons for this. Your score will be negatively impacted by constantly changing card accounts. Long-term stability is rewarded by the risk formulas. Who would you rather lend to, a person who has had the same card account for the past 10 years and has always made payments on time, or a person who opens and closes a different card account every month? Which person do you think is more likely to pay you back?
Additionally, the risk formulas penalize people for too many checks in their file. A person who is applying for a lot of is seen as desperate for credit. That is not helpful. When banks loan money, it is like loaning an umbrella on a sunny day. When it clouds up and begins to look like rain, banks will ask for their umbrella back. That's just the way it is. Banks are most eager to make safe loans, and those loans would go to people who are flush with cash and don't need a loan. The people who could be considered "dirt-poor"
and penniless are the ones least likely to be able to obtain a loan. To develop a high score, you don't want to be projecting the image you are desperate for credit. And you'll need a high score to help you qualify for that mortgage on your first home.
The bottom line: use cards wisely. If you want to qualify for a mortgage to buy your first home, don't use cards to buy things that you cannot afford to buy. Learn to make cards a tool for furthering you towards your financial goals. Fail to do that and you'll likely end up a tool for the card companies to make outrageous profits for their upcoming quarterly report.
Article Source: http://www.articles-galore.com
Greg Roy is a widely recognized construction and real estate expert. Through his website First Time Home Buyer he has helped countless numbers of first time home buyers learn how to turn their dream of home ownership into reality.
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