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Protect Your Credit from Other People’s Credit Problems

By | Your Credit

Many people think its just about building your credit but you also have to protect your credit. Whether you already have great credit or have been steadily improving your score over the years, you’ve worked hard to get where you are. It can be tempting to use your good score to help loved ones when they come to you for assistance, but doing so can damage your credit standing. If you want to protect your credit and financial future, you should think hard before you help someone out. Simply say no when there’s a chance your assistance could hurt your credit. Read these 6 tips before you agree to “help” a friend or family member.

Protect Your Credit

1. Think Carefully Before Cosigning

If you have family members or close friends with bad credit, they might ask you to cosign with them on a loan at some point. Maybe they need to buy a car or get a rental lease and need your help. But the problem is that if they default on the loan or rental contract, their credit won’t be the only thing affected. As a cosigner, you’ll be expected to make any payments they default on. If you can’t make those payments, your credit will be negatively affected. For this reason, you should protect your credit by avoiding cosigning for loved ones, especially if you know they have a history of not making their payments on time. The only exception is if you can afford to pay for the loan yourself should the worst occur, and if you know your loved one is responsible with money and just needs help establishing credit.

2. Don’t Let Other People Use Your Credit Cards

Just as you shouldn’t give just anyone access to your good credit, you also shouldn’t let others use your cards. Maybe someone has asked you if they can become an authorized user on your credit card, or perhaps they want you to make a major purchase on your card and they promise they’ll pay you back. Either way, the debt is yours in the long run. If they suddenly can’t repay the amount they used on your credit card, you’re responsible for it. This means you either have to pay for the bill yourself or allow your credit to be ruined when you don’t pay it.

3. Don’t Rent with Unreliable People

If you need to rent a house or apartment and need a roommate, make sure you can trust him or her to help you pay rent on time every month. Otherwise, you’ll end up with late fees, and your landlord may even report you and your roommate to the credit bureaus once you’re more than a month late on rent. So if you have a best friend who is frequently unemployed and can rarely pay bills on time, do yourself (and your credit score) a favor and don’t rent with him or her–unless you can afford to pay the entire rent by yourself every month. And of course, if you own a house and you want to rent it out, perform a credit check on your new renters to make sure they have a history of paying bills on time.

4. Don’t Make a Habit of Lending Money to Friends or Family

The rule of thumb for lending money is to only lend what you can afford to lose. This means if you lend someone $500, you’d better not be depending on getting that back, because you probably won’t. If you have the money to lend, just give it as a gift if you feel the need to help a friend or family member. However, if the same people are constantly asking you for money, giving it to them may be enabling them. Instead of being a crutch for their bad money management habits, offer to help them make a budget or find a second job to pay their bills. This will protect your credit and go farther than lending them money every once in a while.

5. Build Up an Emergency Fund

Sometimes bad things happen that are out of your control, and you can’t help that. But what you can do is be prepared, and usually having extra money on hand is part of that. For example, maybe you picked a great roommate who can normally pay her bills, but she lost her job and won’t be able to pay rent this month. If you can’t cover the full payment, your credit could be affected and you might even be evicted. Having at least three months’ worth of expenses in savings will help you keep a roof over your head while your roommate finds a new job. Of course, it will also help you in case your own emergency occurs, such as if your car breaks down, you lose your job or you have a sudden health crisis.

6. Protect Your Credit by Focusing on Your Own Financial Goals

Having an emergency fund is a good start if you want to improve your financial security. But you should also have other goals when it comes to money. For instance, buying your own home is a great goal to have if you want to invest in your future rather than throw away money on rent every month. If you already own a house, upgrading it every few years is a good way to improve your investment, so you should save up money to do that. And if you have any debt–such as credit cards or student loans–you should have a plan to pay it all off so you spend as little as possible on interest.

If you need help improving your credit–or want to tell a loved one where to go for financial help–come to Ovation Credit Services. We offer a free credit consultation, so contact us today to get started!

Sources:

https://blog.equifax.com/credit/should-i-co-sign-on-a-loan-for-a-family-member/

https://www.nerdwallet.com/blog/finance/money-rules-of-thumb/

http://www.investopedia.com/financial-edge/1011/top-5-ways-to-protect-yourself-against-problem-renters.aspx

Getting a Mortgage With Bad Credit

By | Mortgage

Mortgage with Bad Credit

Is it possible to get a mortgage with bad credit? The answer is yes, but attempting to do so can pose unnecessary financial hazards. A far more effective plan would be to improve your credit score first and then seek real estate.

Get an FHA Loan

When your credit report is less than stellar, you could try taking out a Federal Housing Administration (FHA) loan, which the government insures. The FHA, by the way, is a division of the U.S. Department of Housing and Urban Development. The requirements for such a loan are relatively lenient. If you’ve experienced a foreclosure or if you’ve filed for bankruptcy, you still might be eligible.

The down payment of an FHA loan amounts to just 3.5 percent of a new home’s total cost. Private lenders often ask for larger down payments, sometimes at rates of 20 percent or more.

FHA loans do have drawbacks, though. To secure one, you’ll need to take out an insurance policy, and its premiums can be more expensive than conventional loan insurance premiums. For an FHA loan, you’ll have to pay an upfront premium as well. A private lender probably wouldn’t require you to make such a payment.

Also, it’s possible that you could obtain an FHA loan only to realize later that you’re unable to make your payments. In the end, it’s better to get rejected for a loan than to get a loan you can’t repay.

Find a Cosigner

Another option is to locate someone who’d be willing to cosign your mortgage. If this person’s finances are sound, he or she should be able to help you procure a lower rate of interest and other favorable terms.

However, this course of action ought to be your last resort. If someone were to cosign your loan, that person would be assuming a major risk. If you failed to make a payment on time or if you were to default, your cosigner’s credit score would be damaged severely.

For that reason, don’t be surprised or offended if those who are close to you decline to cosign. Likewise, if people ever ask you to cosign for them, you should turn them down no matter how much you’d like to be of assistance.

Use Your Negotiating Skills

If you have bad credit, you might still be capable of persuading a lender to grant you a mortgage. Most likely, you’d have to demonstrate that you currently make a lot of money, have substantial savings and aren’t in debt. Furthermore, it may help if you can prove that you’ve paid your rent punctually for the past 12 months or longer.

All of these factors would indicate that you’re financially responsible, and they might convince lenders to overlook your credit score, especially if it dropped due to circumstances beyond your control or because of a one-time mistake that you vow never to repeat.

On the other hand, you might create a financing plan with the person who’s selling the house. That is, you could make a significant down payment and agree in writing to give him or her a certain amount each month. However, many sellers simply have no interest in such deals.

 



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Whipping That Credit Score Into Shape

Given the serious drawbacks to all of the home financing methods mentioned above, there is only one conclusion to draw here. Before you even start looking for a home to buy, you really should make sure that your credit report is impressive enough.

Different credit reporting agencies have somewhat different credit score ranges. But, roughly speaking, those scores extend from 300 to 850. If you want to take out a conventional home loan, you should have a score of at least 650, and 700 or higher is preferable. Don’t panic if yours is less than 650, however.

Rather, there are a variety of ways in which you could raise that number fairly quickly. For one, you could obtain copies of your credit reports, look for errors that aren’t in your favor and tell the agencies about them. In addition, pay off all of your credit card balances. Likewise, if you haven’t always been doing so, start consistently paying your credit card bills on time and in full.

Moreover, with each of your credit cards, don’t utilize more than 30 percent of your credit line during any given month. In fact, to keep your utilization rate down, you might request higher credit lines if you’re eligible for them.

Finally, an outstanding credit repair service can review your specific financial circumstances and find ingenious and highly efficient techniques for boosting your score.

In the end, the strongest reason to avoid taking out a mortgage with bad credit is that you’d most likely get stuck with an extremely high interest rate. Because of that rate, you’d spend thousands of dollars more over the life of your loan. By contrast, you could invest perhaps a couple hundred dollars in improving your credit score. Consequently, you’ll not only obtain a much more affordable mortgage, but you’ll have the ability to work out many other advantageous financial contracts in the future.

Sources:

https://www.bloomberg.com/news/articles/2016-05-10/how-to-raise-your-credit-score-fast

http://www.forbes.com/sites/trulia/2015/02/04/the-pros-and-cons-of-seller-financing/#4ba516f7e822

http://homeguides.sfgate.com/buy-house-down-payment-bad-credit-7377.html

http://money.usnews.com/money/personal-finance/articles/2015/01/30/how-to-get-a-home-loan-with-less-than-stellar-credit

http://www.nytimes.com/2013/12/08/realestate/the-downside-to-fha-loans.html

http://time.com/money/3086800/qualify-mortgage-bad-credit-low-credit-score/

https://www.yahoo.com/news/4-ways-buy-house-bad-152456987.html

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