Unlocking Opportunities for Your Home Buying Journey
Dealing with credit card debt is a universal experience that impacts individuals across all tax brackets. The far-reaching consequences of credit card usage on your credit score cannot be underestimated, potentially derailing deals and jeopardizing your chances of securing your dream home. As a real estate agent, I have witnessed firsthand how clients have been forced to turn down promising homes due to excessive credit card debt that surpasses loan requirements. This situation can trap you into specific real estate tax amounts or even prevent the successful closing of a deal.
Before embarking on your promising homebuyer journey, it is crucial to equip yourself with the knowledge of how to leverage your credit card effectively. Rather than being enslaved by it, I believe in making your credit card work for you. Recognizing that credit cards, while sometimes perceived as a necessary evil, play a significant role in credit scores, mastering the game is what sets you apart from the rest.
This blog is the first part of a four-part series that aims to guide you through the intricacies of credit card usage, providing you with the tools and strategies to navigate the credit landscape with confidence. In this installment, we will discuss how to establish credit with a secured credit card, which can serve as a valuable starting point on your credit journey!
Disclaimer
Please keep in mind that I am not a financial advisor, I am not a lawyer, and I am not your real estate agent. The information you will see below are examples from my personal and professional experience. I hope these examples provide you with ideas on how to take action in your own life and serve as conversation starters with the professionals who are currently or will be assisting you in reaching your goals.
Mastering Credit Card Usage: Part 1
Establishing Credit: Using a Secured Credit Card
If you're someone who has never had a credit card and needs to establish credit, I highly recommend getting a secured credit card. A secured credit card works differently from a regular credit card, as you are required to make a deposit to receive it. The deposit amount will serve as your credit limit. For example, if you deposit $500.00, your card's maximum spending limit will also be $500.00. You can get your deposit back by either closing the account after paying off the credit card or through point rewards or the bank returning the deposit after a year of usage, transitioning you to an unsecured credit card.
Here are some key points to keep in mind:
Only use the credit card when you have sufficient funds in your account. If you don't have the money in your account and don't expect to have it in the near future, avoid using your credit card. While credit cards typically have a grace period where no interest is charged, it's not advisable to spend money you don't have. To get accustomed to this, for a month or two, solely use your bank account to gain a clear understanding of your finances, income, and expenses. This will help you establish a realistic budget.
Contact the bank and request to align the credit card's due date with your paycheck. This way, you can ensure timely payments and avoid spending the funds on other things.
Once you have a grasp of your budget and income, start using your credit card for certain expenses such as gas or some utility bills. If possible, set up autopay for your bills on your credit card to potentially waive service fees. However, it's important to verify with the respective companies if this option is available. If a fee will still be charged, avoid using your credit card to pay that specific bill.
Let's discuss payment. Aim to pay off your credit card balance within 10 days each time. Personally, I pay off my credit card every Wednesday when my paycheck is deposited into my account. By doing this, I benefit from credit card rewards points, maintain a favorable credit utilization ratio, and establish a positive payment history. This practice will significantly boost your credit score and help you secure the best possible outcome when you begin shopping for a mortgage loan.
Remember: Stay diligent and disciplined! Refrain from using money you know you won't have. This is crucial!
On our next blog, let's discuss how to pay off credit cards when you possess a good-excellent credit score. See you there!
Visit the other parts of this series:
Sources:
Equifax. “What Is a Secured Credit Card and Does It Build Credit?” www.equifax.com, 2022, www.equifax.com/personal/education/credit-cards/what-is-a-secured-credit-card-do-they-build-credit/#:~:text=secured%20credit%20cards%3F-,Secured%20credit%20cards%20are%20a%20special%20type%20of%20card%20that,time%20you%20make%20a%20purchase.
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