Credit scores take a long time to increase, but it’s worth taking some steps to increase yours, especially if you’re in the process of buying a home. A mortgage will eventually build your credit, but it may make your credit score drop at first since your lender will have to run a credit check. Follow these steps to keep your credit score up during the process.
Make Payments on Time
Your payment history accounts for the largest portion of your credit score: about 35%. So it’s crucial to get caught up on any late payments and make all future payments on time. Most companies have an option to auto-pay your bills or set up payment reminders, so take advantage of those to stay on top of it. A money management tool like Mint can also help.
Avoid Applying for New Credit You Don’t Need
Opening new accounts will lower your average account age, which can hurt your length of credit history. Plus each time you apply for a new line of credit, it can make a small decrease in your credit score. If you need to get a new credit account (like a car loan), be sure to complete your loan applications within a short period of time so it doesn’t look like you’re trying to open several new lines of credit.
However, if you don’t have any credit cards — or any credit accounts at all — you should definitely open an account to establish a credit history. Certain lenders are better able to work with people with no credit, so be sure to ask your real estate agent what they recommend.
Pay Down Credit Cards
When you pay off your credit cards, you lower what you owe, thus lowering your credit utilization ratio (the ratio of your account balances to your credit limits). Some people recommend starting with your highest-interest debt and paying that off first, but others say paying off your lowest balance first is the way to go. Then you can roll that payment into your next-lowest balance to create momentum.
Make a list of all your credit card balances and tackle them one by one. Make the minimum payment on all of your cards except one — pay as much as possible on that card until it’s fully paid off, then cross it off your list and move on to the next card.
Avoid Closing Old Accounts
Unfortunately closing an old account won’t remove it from your credit report. In fact, it can even hurt your credit score, as it can raise your credit utilization ratio. You’ll have less available credit, and your average length of credit history will drop.
Paying off a collection account won’t remove it from your report either. This will stay on your credit report for seven years, but the impact it has on your credit score will decrease over time.
Correct Errors on Your Report
Mistakes and fraudulent activity can hurt your credit score, so it’s a good idea to check your credit report at least once a year. The FTC has a good overview of how to dispute errors on your credit report.
It takes time and work to raise your credit score, but it’s well worth it. It’ll help you qualify for a mortgage and secure a lower interest rate on car loans and credit cards too. You might even qualify for lower rates on insurance premiums.
I’m happy to talk through your current credit situation and how it might play into buying a home in Mammoth Lakes. Contact me to get started.
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- 7 Tips and Tricks from Real Estate Insiders on How to Buy a Home
No one wants to pay taxes, especially if there’s a smart financial solution that can save you money. A 1031 Tax Deferred Exchange is a well-established strategy used to defer taxes on the sale of a home or business by purchasing another property. It has become increasingly popular with real estate investors.
1031 exchanges are pretty common in Mammoth Lakes as often people are selling properties in other locations and purchasing here. Or, as is the case of a current client, he’s selling his one-bedroom Mammoth condo and upgrading to a two-bedroom condo.
If you’re buying a property that specifies it has a 1031 exchange condition, it won’t affect you. Only sellers need to think about 1031 exchanges.
Here are the top four things you need to know about 1031 exchanges:
1. They can give you a 100% deferral of federal and state capital gain taxes.
If you buy a property that’s greater or equal value to the property you’re selling, a 1031 deferred tax exchange can defer capital gains taxes on the sale property. A properly structured exchange will be interest-free.
2. They can give you leverage to increase the value of your property portfolio.
Selling a property with equity for a more leveraged, more valuable one that produces more cash flow and greater depreciation benefits will increase your overall return on investment. In other words, you come out ahead. The client I mentioned above is selling a property with quite a bit of equity for another more expensive one, and the new one will generate more rental revenue and bigger depreciation for him, thus giving him a higher ROI.
3. They facilitate diversification.
Using a 1031 exchange allows you to diversify into new geographic markets or switch from a commercial property investment to a recreational property investment. For example, sell your beach house or big city apartment building and buy a Mammoth condo.
4. They can help with estate planning.
Selling a large property to buy several small properties can make distributing your real estate assets to family members easier.
A 1031 exchange may or may not be the right move for you — check with your CPA for specific details on your situation. A neutral 1031 exchange agent is necessary to facilitate the transaction. Ask me if you’d like a referral for someone I’ve worked successfully with.
Learn more about selling your Mammoth Lakes property in my Ultimate Home Seller’s Guide, or read more of my posts about real estate finance. If you’d like to talk, call me at (760) 914-4664.