What’s In Your Wallet (It Makes a Difference) Part 2

Working on your credit scores so you can purchase a home in North Carolina?  We want to help!  It’s going to take some time to work it all out, and unlike most loan officers – we work with people who are “in the process” of buying a home.  Many people call us and want to know what credit cards to pay off first for higher credit scores.

If you are not behind on payments, and you think you can manage the payments as they are (without closing accounts)… let’s talk about one of the most important things you can do to raise your credit score.

Take out your wallet… Look at the Credit Cards; and find the ones that have the name of a STORE on them (these are just examples):

Best Buy, Rooms To Go, Belk’s, Victoria Secret, Apple, Lowe’s, Sears, Pottery Barn, Radio Shack

Put those in one stack. Then take out the ones with the name of the BANK on them:

Chase, Bank of America, Wells Fargo, CitiGroup

Put those in a Stack. Then take all the rest of them out:

Discover, American Express, Capital One, Provident, American Airlines

And put those in a Stack. Now—if you REALLY have all of these credit cards, and they all have balances on them… you should have some really nice stuff! WOW! (ROFL!) But I digress…

So, when you have an extra $50, which ones do you pay down first?  Well, our suggestion is that you pay OFF the first stack as fast as possible. Not just down to 50% balance versus Credit Limit… these are the ones you really ought to cut up and close. Do NOT use STORE credit cards if you can help it! It’s not worth the discount to defer payments on Rooms To Go if you care about your Credit Score! Listen to Dave Ramsey and buy the furniture when you can afford to pay cash!

With the other two stacks— work to get rid of the Capital One, Provident, “B” Tier cards as quickly as possible and cut that card up. You might not want to cancel the account, having the limit there is okay with a zero balance—but they are difficult to deal with and charge very Large Fees.

Once you have THOSE cards paid off, start working on the “Bank” credit cards. Pay each one down to at least a 50% balance. If you do this—you will have a GREAT credit scores!  That’s the GOAL!  Right?  

Here’s some more information about Minimum Credit Scores needed to get a Mortgage.  We CAN make loans to a very narrow group of folks who have credit scores under 620 – but for most folks, you’ll need at least two credit scores over the 620 mark.  That’s very possible. Credit is like being on a diet – you didn’t gain that extra 20 pounds in 2 weeks… BUT, you CAN fix the situation you are in.

Remember that it’s MOST important to add GOOD stuff to your credit report… keep from adding anything else that is NEGATIVE to it, don’t focus on old negative data on the report.  Go 12 months with on time payments – and you will likely be able to buy a house! Yeah!

Think this is something you want to do next year? No problem – you can get started now, and we want to help!

It’s not just the credit score we need to look at, we need to think about the balances on revolving credit (credit cards) too. Because we do have pretty tight debt to income ratios for qualifying to purchase a home.

There’s something called Qualified Mortgage (QM), which is a rule that is suppose to go into effect in January of 2014.  With a QM, you can’t have a total house plus other debt payment that equals more than 43.000000% of your gross monthly income.

So, you have gross monthly income of $5500 (for instance), your total house payment (including taxes and insurance) PLUS your car payments, credit cards, student loans – can’t be more than $2365.

The Debt to Income Ratio is going to be PART of what we look at when we are qualifying you for a mortgage – the OTHER big part, of course, is your Credit Score.

If you have questions about buying a home, or want specific information about how to improve credit scores…and what credit cards to pay off first for higher credit scores – please call Steve and Eleanor Thorne, in Raleigh NC !  919-659-5058