Thursday, April 1, 2010

Don’t Get a Home Loan Until You’ve Raised Your Credit Score

In this day and age, credit has a massive amount of power over how you get to live your life. Your credit rating affects what rate you pay if you buy a car with a note. It also affects whether or not your utilities require you to put down a deposit before they activate. And not only that, but in most cases, a higher credit score is a mandatory part of securing a high paying job. Great credit ranks right up there with your resume and references. But of course, the most obvious benefit of having great credit is being able, not only to buy a home without having to save up enough cash for the purpose, but also to take out an additional loan against the property later on.

A home loan can be a very valuable source of funding for a major project, such as going on to a higher level of schooling. It can also finance the addition of new rooms to the structure, or the building of a garage. A home loan can even be used to purchase (and possibly renovate) a rental property, so as to increase your income and net worth. Over all, when taken in moderation and used responsibly, home loans can be wonderful ways to expand your life… or access emergency cash, if something goes terribly wrong. But of course, like every thing else in your life, it is always best to get a great deal. And equally obviously, having great credit is a major component in proving that you are a low risk to the credit issuer. Here are some great ways to increase your credit score.

The purpose of the credit score (and its attendant system) is to make certain that you are a reasonably low credit risk. And “low credit risk” means “responsible citizen who pays their obligations without being hounded.” If you generally live a responsible life, your credit score will reflect this.

Not every one knows this, but paying your utilities on time actually contributes slightly to having good credit. And while this contribution is very small, it is dwarfed by how much NOT paying your utilities will hurt your credit score. To say nothing of the fact that having a utility turned off could be seriously harmful to your health.

If you have any sorts of loans, pay them. Pay them on time, every month. If you do not pay on your loans, you will be seen as a high default risk. And if you are seen that way, you will only have access to high interest payday loans – which will help your credit score if you pay them properly, but they will cost you greatly.

And do not expect that being perceived by credit issuers as a low risk can be accomplished quickly. A major portion of your credit score is determined by its length. One year is a start. Five years is better. Ten years is when the keys to the kingdom may finally be yours. Do not expect to rush to process, and you will find a GREAT home loan rate.

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