*credit score north of 800 waves hand* Here’s how I got there and what you need to do. 1. CUT UP YOUR CREDIT CARDS. This does not mean close the account - in fact, don’t do that. Just feed the card to a shredder, take them off your online stores, and pay those bad boys off. You might benefit from getting a debt consolidation loan to do so, as interest is usually less and it becomes installment debt rather than revolving debt. Don’t close the accounts, though - the average age of all your accounts plays into your credit score. The older the accounts you have, the better you look. 2. How do you stay out of the credit cards? Build yourself an emergency fund in addition to the down payment fund. This should be a liquid fund that is used only for things like your water heater exploding or losing your job. $1000 is a good place to start but it isn’t always enough. 3. Take a good look at your credit report. You can get one free per year from each of the three reporting agencies. Any black marks? Are they real and do you know what they are? If so, settle them. If not, dispute them. 4. Make a budget and figure out where the money goes and where you can cut back. The goal here is to spend less than you earn, or IOW live within your means. 5. Figure out how much house you need and how much down payment you need to get that house. FHA loans are typically just 3.5% of the purchase price, but the seller/complex has to be approved as an FHA housing provider (your real estate agent can tell you if they are). Then, adjust your budget so that you’re putting aside enough to meet the five-year goal. 6. What does your credit have to look like to land a decent mortgage? Try to get your credit score to 680 or better - preferably 700+ - and your debt-to-income ratio to no more than 35%, meaning that your monthly debt should be no more than 35% of your gross monthly income. You will pay more for a mortgage if you do not meet BOTH criteria.
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Yes, I’ve done this. It probably will save you money, but here’s the trick: You can’t go back to using the credit card and only paying minimum payments. Consolidate into a personal loan, and see if they’ll give you enough to pay off the balance PLUS $1000. If they will, the other $1000 becomes your emergency fund. LEAVE IT ALONE and use it only for things like your water heater goes boom or you lose your job. Consider tucking aside an extra say $50 off each paycheck to augment that fund. That will keep you from having to tap the credit card for rainy-day expenses. Important to note: Minimum payments on a credit card aren’t enough to keep your balance from rising. You need to pay the interest for the month and a portion of the principal each month to get the balance to actually go down.
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