subject: Make a Budget and Fix Your Credit [print this page] Do you know what is expected of you when you are on your way into a mortgage company or a bank for a loan to buy that first house? Do you know what they look for and what constitutes good credit in their eyes? Do you know if it is good or bad to have credit cards that you use all the time, and how many credit cards a family should be using at once?
If you want to be prepared and be accepted for that loan you applied for, read this, for it is not fun to be turned down for a loan when you have finally found that house you have always wanted to buy.
Many families do not have a budget, and most families do not even keep files when it comes to their finances. Many people show up at the bank or mortgage company with a box of reciepts, and even try to do their taxes this way. It is very frustrating to try to find something, especially when you are in a hurry, if you must look through a shoebox of papers .
Lets get organized before we do anything else. Buy some manilla folders, and labels and for every reciept you have, there should be a corresponding folder. For example you need one that is labeled Electric Co. and Phone Co. and of course one with your landlords name on it. These folders should be labeled in a place so that when they are in the drawer standing up, you can plainly see what is in it, and they should be placed in alphabetical order. That is the easy part.
Next, you should have a savings account, and the statements from that account in the folder labled with the bank name and savings account. The account should be used only for saving money. Many people use their savings account for cashing checks, and many other things that should be done in the corresponding checking account. The savings account should be opened with an amount, and the statements should show monies being deposited to the account, and not withdrawn. If you find you are having to take money out of savings, it is because you are trying to save too much at a time. Even if you can only put $10 or $20 dollars a week into the account, it is better to do that and not take it out as to put in more and have to withdraw.
Checking account- a checking account is always looked for when you go to apply for a loan. They will want to see if you can manage your money, and not get into trouble by bouncing checks. Your checking account should have an overdraft so that if you do write a check over the amount you have in the bank, it will be covered by the bank and not bounce. This does not look bad on your credit, and it is in a way a form of credit because you must put that money back and be sure the account is not overdrawn every month. This is the first thing a loan officer will look at when determining you for a loan. If your checking account has not been properly maintained, and there are late charges and bounced check charges all over it, this will be a mark against you.
Credit cards- Many people think that credit cards are only to be used occasionally, and that if you keep them all paid up, that it will be a good mark on your credit report. This is not the case. A mortgage company or loan officer will want to see at the very least two credit cards that are used every month, but only to a 20 to 50 percent of their limit. For example, if you have a visa card, and it has a $2000 limit, they will want to see that you have charged things to that card to in the amount of between $400 at the low end, and up to $1000 at the high end. Then they want to see that you have made sufficient payments on those purchases to have the card paid back in a timely manner, however the card wants or calls for it to be paid. Some cards want you to pay them off every month, and others are made to hold a balance, but want that balance to be lowered. It is not a good thing to only make payments on that amount that is only going to cover the interest on the card, or to make a minimum payment.
The loan officer will want to see that you actively use at least two and up to five credit cards every month. They will also expect to see that you have paid your utilities, insurance, and any other obligations you have up to date and that none of your bills are past due amounts.
When you have done this, and kept your fianances in this condition for four to six months, you will then qualify for a loan on a house. It is not as hard as it may seem to keep your money in order, and if you learn to do this and keep your accounts this way, your financial headaches will go away.
