Pacific Debt Blog

Why Your Equifax Credit Score Is Lower Than TransUnion

Why Your Equifax Credit Score Is Lower Than TransUnion

Your credit score allows you to get credit, buy large ticket items, rent an apartment, get certain jobs, and is viewed as a window into your financial trustworthiness. The higher your credit score, the better the loan terms.  But just what is your credit score and who is behind it? And why are your scores different from each reporting agency?

Who are the Credit Bureaus?

There are three different commonly used credit bureaus; Transunion, Equifax, and Experian. Each one collects financial data from creditors. They then analyze this data and issue credit reports to anyone who has permission to obtain the report – potential employers, lenders, landlords, etc.

Each one collects slightly different data and since creditors are not required to report your data, each one may have slightly different information. For instance, Transunion includes extensive data on your employment while Equifax and Experian report only your employer’s name. In addition, each one uses a unique algorithm.

There are also “niche” credit bureaus. If someone wants to check your credit, ask which company they intend to use. You can then request a report from that company to verify all your information is correct.


FICO vs VantageScore

Your credit report will use one of two scores – FICO or Vantagescore. FICO is the most common one. It stands for Fair Isaac Corporation. Each credit bureau creates a FICO score based on what is reported to them. This may account for a difference in FICO scores among credit bureaus. One problem with FICO is that every time someone does a “hard pull” of your credit report, your credit score drops temporarily.

VantageScore is an algorithm developed by the credit bureaus based on the consumer credit information on file. It assigns different weights to different parts of a credit profile. Initially, the VantageScore used its own score ranges, but now uses the same scoring as FICO. VantageScore is especially helpful for people with a thin credit history or who are just starting out.

Regardless of which scoring systems is used, the credit score chart is as follows:

  • Excellent = 750 and above
  • Good = 700-749
  • Fair = 650-699
  • Poor = 550-649
  • Bad = Below 550

Equifax Vs Experian Vs Transunion

You are entitled to a free copy of your credit reports once a year. You can view these for free through AnnualCreditReport.com.

Equifax

  • charges for reports ordered through website
  • dispute button on website
  • paid credit monitoring subscription called Equifax Complete™
  • will notify the other credit bureau if you notify them of a fraud
  • credit freeze available, but must notify all three yourself
  • Equifax credit score – 300 – 850

Experian

  • charges for reports ordered through website
  • dispute button on website
  • paid credit monitoring subscription called Experian Credit Tracker℠
  • will notify the other credit bureau if you notify them of a fraud
  • credit freeze available, but must notify all three yourself
  • Experian credit score – 300 – 850

TransUnion

  • charges for reports ordered through website
  • dispute button on website
  • paid credit monitoring subscription through TransUnion credit monitoring service
  • will notify the other credit bureau if you notify them of a fraud
  • credit freeze available, but must notify all three yourself
  • TransUnion credit score – 300 – 850

What is the Difference between TransUnion and Equifax and Experian?

There is no difference between the three credit bureaus. They will have different scores because of what is voluntarily reported to them. So why do they have different scores? Equifax, Experian and Transunion use different algorithms, there is different information reported to each company, and TransUnion places more weight on your employment history.

How Do I Know If My Credit Report Is Correct?

You should check your credit report once a year. It is free and simple. You can purchase a report from each credit bureau or go to AnnualCreditReport.com. You can also look into websites like Creditsesame or CreditKarma.

When you get your report, look for any errors. Is your name correct? Address? Employer? Next, examine the open lines of credit. Did you actually open them? Are there loans or credit cards you don’t recognize? Some issues, like bankruptcy, are supposed to drop off your report after 10 years. Debt sent to collections should drop off your report after 7 years. However, if you have a judgement, the time limit is determined by your state’s statutes of limitation.

If you discover errors, you should dispute them. Send COPIES of documentation to the credit bureau along with explanations. You may have to do it several times and stay on top of them.

If you are denied credit based on your credit report, you can request the reason and a report. Some experts suggest spreading out requests for credit reports so that you get a different one every four months (for instance, TransUnion in January, Experian in May, and Equifax in September). This will allow you to look for fraud or other issues before too many months have passed.

If someone has stolen your identity, you can contact each credit bureau individually and place a freeze on your credit until you get the issue solved.

How Can I Improve My Credit Score?

If you are not happy with your credit score, you can start to fix it immediately. First, work on paying bills on time. Since 35% of your score is based on timely payments, it can be a pretty quick way to improve your score.

Next, use your credit carefully. Credit utilization accounts for 30% of your score. Credit utilization is the ratio of outstanding credit card balance versus your credit limit. The lower your utilization ratio, the better. For instance, if you have $1000 limit and $900 of outstanding balance, your credit utilization is 90%. Pay down your credit card bills. You can also ask for increased credit limits. Just don’t use the increased limits!

Credit age makes up 15% of your score. Basically, the longer you have had credit reported to the bureaus, the better. Having old credit – cards held for a long time – is also helpful. Lenders also like to see a variety of credit types. Credit variety accounts for 10% of your score. And finally, the number of recent inquiries count for 10% of your score. This means you do not want to apply for credit cards just to decrease your purchase costs. Every single time you do that, your credit takes a temporarily hit.  

Click here to learn how many credit cards you should have.

Our Take

Your credit report is very important to your future. Whether you are buying a house or car, looking for a new job, or wanting to start on your education, your credit score matters. There isn’t much difference among the three bureaus – Equifax, Experian or TransUnion – but each needs to be monitored for accuracy.

Pacific Debt has helped thousands of people reduce their credit card debt.


Should I Use a Credit Card for Everyday Purchases?

Should You Use a Credit Card for Everyday Purchases?

Whipping out a credit card is very easy. Plus, you get rewards – cash back or airline miles – for every purchase. Using a credit card for everyday purposes seems like a win-win situation. But is it? We’ll look at the pros and cons of credit cards and everyday use and answer should I use my credit card for everything?

Why Use a Credit Card for Every Purchase?

There are appropriate reasons to use a credit card for everyday purchases. As we’ve mentioned before, you can maximize your rewards points, in effect making your purchases work for you.

Responsible credit card use and repayment history can help your credit score. Most people don’t like to carry large amounts of cash, and a credit card is a great way around that. Another great reason to use a credit card is that you can accurately track every single expenditure. You’ll also have purchase protections when you use your card.

Pacific Debt has helped thousands of people reduce their credit card debt.


Why You Should Not Use a Credit Card for Every Purchase

There are some very good reasons not to use credit cards for everyday purchases. It is very easy to overspend. After all, your credit card doesn’t feel like it has a limit and it takes almost no effort, unlike writing a check. Another concern is fraud. Every time you use that card, your run the risk of someone getting the number.

Some retailers don’t allow you to use a card for small purchases since their fees are more than your purchase. There are some merchants who don’t take plastic. And finally, the more you use your card the higher your balance. If you don’t pay it off, it becomes very expensive as it becomes a revolving balance.

Using a Credit Card for Everything

If you choose to use your card for everything, there are a few rules that will keep you from overspending.

First, use one credit card. The more credit cards you use the more you will owe. Keeping it to one also keeps all your purchases on one card where you can track them more easily. Plus, you only have one to pay off.

Second, your credit limit needs to be large enough so you can cover your monthly spending. If yours isn’t, keep your credit clean and build up to a higher limit. The other option is to pay off your card several times a month.

Third, put up your debit card so you don’t deplete your account and can’t pay off your credit card.

Fourth, always pay off your balance every month. Otherwise, that $2.95 daily latte is going to get really expensive as your charges will end up revolving.

Since 2002we’ve settled over $200 million in debt for our clients. Contact us today to see how we can help.

Revolving Credit

When you are deciding whether or not to use a credit card every day, think about what happens if you don’t pay off your balance every month. Take our latte example. We’re going to make a few assumptions based on average credit card rates.

  • Our APR is 17.55%
  • Minimum payments of 2% of the balance

If you buy 30 lattes at $2.95 a cup, in one month you’ll owe $88.50. If you don’t use the card for anything else, it takes six months to pay off those coffees if you’re only making the minimum payments. After you factor in interest, each cup actually costs you $3.11. Doesn’t seem too bad, does it?

But this example assumes that you make no additional charges on your card for 6 months and you only make the minimum payment each month. If you do make additional charges, it takes longer than 6 months to pay off the lattes and the amount you effectively pay creeps up.

Let’s say you buy 30 lattes a month but only make minimum payments. At the end of the second month you’ll owe $162.00. If you stop using the credit card at that point, it will take you almost a year to pay it off and you’ll pay $3.15 apiece for the lattes. As you can see, it takes a long time to pay off a card making minimum payments and while 20 cents a drink doesn’t seem like much, it adds up!

If you are using your card for everything, let’s say you charge $2000 a month on your card. You make a 2% minimum payment. The next month, you charge another $2000. You now owe $3960.

Repeat for one more month and you owe $5880, roughly the average amount of credit card debt for Americans.

If you stop using this credit card immediately, it will take you 31.5 years to pay it off at minimum payments and you will pay $13,610. You can see that using your credit card and not paying it off gets very expensive very quickly.

Credit Card Grace Periods

People who are very organized may be able to take advantage of grace periods, the 21 to 27 days that you are not changed interest by your credit card company. However, this only works if you are very organized and track those dates. Otherwise, you will get into trouble very quickly.

Should You or Shouldn’t You?

Covering all your monthly spending with a credit card can be a good thing, if you have self-discipline and (we can’t repeat this enough) PAY OFF YOUR BALANCE EVERY MONTH. Don’t become one of the millions of Americans with credit card debt.

If you really want to try this, start with a secured card and see if your self-control, income, and expenditures are all on the same page!


Pacific Debt has helped thousands of people reduce their debt. Since 2002we’ve settled over $200 million in debt for our clients. Contact us today to see how we can help.


Debt Consolidation vs Debt Settlement

Debt Consolidation vs Debt Settlement

The average American carries around a balance of $6,375 in credit card debt alone. That is an increase of 3% from last year.  In 2017, total credit card debt held by Americans reached $1 trillion. If you have a lot of credit card debt and are looking for a quick way out, you are not alone. You’ve probably seen several terms – debt consolidation, debt settlement, and bankruptcy. These can sound similar, and each one has its unique pros and cons. We’ll look at the first two in more depth and then compare the pros and cons to bankruptcy.

What Is Debt Consolidation?

Debt consolidation takes all your debts and rolls then into one. You then take out a loan and pay off the debts. You then pay off that loan through monthly payments. In order to get a loan, you’ll probably have to have some sort of collateral. The goal is to get a reduced interest rate and lower monthly payments. Debt consolidation is best for people who are only making minimum payments.

Since most debt consolidation plans involve loans, you may have additional fees like origination fees or closing costs. Those fees can add quite a bit to your existing debt.

Contact Pacific Debt today for your FREE consultation and Savings Estimate

Debt Consolidation Pros and Cons

Pros

  • Reduce the number of bills
  • Lessens chances of falling behind on bills
  • May be able to get lower monthly payments and interest rates

Cons

  • No control of spending habits – if you don’t reduce spending you will never eliminate debt
  • Debt is not forgiven or even reduced
  • Can take 3–5 years in a debt consolidation program to eliminate debt

Types of Debt Consolidation

There are several types of debt consolidation. These include a debt management plan (DMP), balance transfer on credit cards, personal loans, or home equity line of credit (HELOC).

A debt management program includes credit counselling and education programs. They can take a long time – up to 5 years – to complete. You will learn the roots of your financial problems and how to manage them.

Balance transfers on credit cards allow you to transfer your existing balances to a lower interest card. This sounds great except that 0% balance cards are hard to get. If your credit score isn’t over 700, you probably won’t get one. In addition, balance transfers come with a transfer fee of 2-3% on the balance and an expiration date of 12 to 18 months on the lower rate. Interest rates can then increase to more than your initial card.

Personal loans can be hard to get if you have a high debt-to-income ratio. You may end up with an origination fee, a prepayment penalty, and may need to have collateral (your car, home, etc.).

HELOCs have low interest rates but your home is the collateral. If you don’t make the payments, you could lose your house. Since it is a loan, you may have to pay application fees and closing costs as well.

Does Debt Consolidation Hurt Your Credit?

Debt consolidation can hurt your credit score and report. Taking out a loan requires a “hard pull”

on your credit report. This will lower your credit score for a bit. It can lower your credit utilization ratio if you open a new credit card and transfer all your balances to it.

What Is Debt Settlement?

In debt settlement, you negotiate with your creditor to lower the amount you owe. If negotiating is not in your skill set, there are companies like Pacific Debt, Inc. that specialize in negotiating with creditors and have an excellent track record in debt negotiation services. The secret to debt settlement is that you have to stop paying your bills in order to make creditors willing to negotiate. This action can come with late fees and creditor phone calls.

Debt Settlement Pros and Cons

Pros

  • May be able to pay less than you owe
  • Last resort before bankruptcy
  • One low monthly program payout
  • Faster than Debt Management
  • No credit requirements or collataral

Cons

  • Annoying phone calls from creditors
  • Short term impact on credit score and credit report for up to 7 years
  • Possible tax consequences
  • Risk of creditor lawsuit

Does Debt Settlement Hurt Your Credit?

Unfortunately, debt settlement does come with some credit score and credit report damage. Your late payment history may stay on your credit report for up to seven years. You should consider debt settlement for debts that are very delinquent or already in collections or if you are struggling to even pay the minimum. That way the damage is already done to your credit score.

What’s the Difference Between Debt Consolidation and Debt Settlement?

The quick answer is that in debt consolidation, you take out a loan to pay off all other bills, then pay off the loan. In debt settlement, you negotiate with creditors to lower what you owe. When comparing debt consolidation vs debt settlement, take into consideration the effects on your credit score, the fees charged in each case, how long the program will last and how delinquent your debt.

Bankruptcy

Bankruptcy is a legal action to have your debt erased. Bankruptcy is a last resort. It can stay on your credit report for up to ten years. It is also legally complex and expensive. In debt consolidation vs bankruptcy vs debt settlement, always try debt consolidation or debt settlement first.

About Pacific Debt, Inc

Unlike credit counseling agencies or debt consolidation companies, Pacific Debt’s main objective is to eliminate your debt completely. If you successfully follow our program, you may be debt free in 2 to 4 years. To be eligible for the Pacific Debt settlement program, you must have more than $10,000 in unsecured debt

Pacific Debt, Inc is accredited with the American Fair Credit Counsel and is an A+ member of the Better Business Bureau. We rate very highly in Top Consumer Reviews, Top Ten Reviews, Consumers Advocate, Consumer Affairs, Trust Pilot, and US News and World Report.

For more information, contact one of our debt specialists today. The initial consultation is free and our debt specialists will give you all your options.


Pacific Debt has helped thousands of people reduce their debt. Since 2002we’ve settled over $200 million in debt for our clients. Contact us today to see how we can help.


How Many Credit Cards Should I Have

How Many Credit Cards Should I Have?

Credit cards make buying quick and easy. Earn airline miles or rewards for spending money! Apply for a credit card and get money off your purchase instantly! But whipping out a credit card to pay for impulse purchases or to make up income shortfalls can get you into a world of trouble.

In 2018, the average US household had $6,929 in credit card debt. If you live in Alaska, the average resident has an average of $14,000 of credit card debt – the highest in the US. The average American has 2.35 cards, some open and some closed but still factored into their credit report.

With those positives and negatives in mind, do you really need a credit card and if so, how many credit cards should you have?

Do You Really Need A Credit Card?

The answer to “do you really need a credit card” is maybe. There are great reasons to have a credit card and great reasons to avoid credit cards. It depends on you and how responsible you are with that tempting piece of instant cash in your pocket.

Positive effects include that responsible use can help build credit. Credit cards are revolving credit, which means the account stays open, unlike a car loan that has a set end date.  You want some revolving debt to show that you use your credit wisely and pay on time. Lenders will look at your credit utilization ratio to see if you are a good risk. Credit utilization is how much of your available credit you are using each month. The lower your credit utilization ratio, the better.

Late payments and/or high balances have negative effects on your credit rating. So, the answer is if you will be responsible, a credit card is a great idea.  

Contact Pacific Debt today for a FREE Consultation

Why Should I Have Credit Cards?

Hotels and airlines, to name two businesses, may insist that you pay with a credit card. Online purchases are easier with a credit card. They can be very convenient in an emergency.

If you are applying for your first credit card or routinely apply for every card that you are offered, there are a few things you need to take into consideration.

Every “hard inquiry” that a lender makes negatively affects your credit rating. A hard inquiry is a request for your credit report. Each new credit account will temporarily bring down your credit score. Lenders like to have older accounts and each new credit card (or loan) brings down the age of your report.

How Many Credit Cards Should You have?

How many credit cards should you have? Most experts recommend two from different networks (Visa, Mastercard, American Express or Discover). These two should offer a different type of rewards (for instance, airline, general purchases, cash back). Some stores (Costco) will only take one network (Visa). If you travel internationally, some networks (American Express and Discover) are not as widely recognized.

Is it bad to have a lot of credit cards? It depends on you. If you are using your credit cards wisely, a drawer full of credit cards may not be bad. However, if you max out one credit card after another, a new one won’t help you get out of debt.  

Some people are able to use balance transfer credit cards to help them lower their interest rate. These cards often come with balance transfer fees and startlingly high interest rates if you miss one payment. Always read the fine print!

Some credit cards come with incredible sign-up bonuses. These cards often come with annual fees that offset bonuses. Make certain you understand what you are getting “free” and what it costs.

Talk to us today for FREE

What Credit Card Should I Get?

If you have no credit history or bad credit, start with a secured credit card. These have a limit secured by money held in escrow. As you use and pay off the card each month, you improve your history. You are also building good habits.

Once you have that card and your behavior under control, you can add a second card. Look for one that has rewards that you will use and don’t expire. Consider an airline rewards card and a cash-back card.

Whatever you do, pay off your monthly balance and make all your payments on-time.

And finally….

READ THE FINE PRINT and UNDERSTAND WHAT YOU ARE GETTING INTO!!!

For more information, talk with one of our debt specialists today.

FREE CONSULTATION

The Best Debt Reduction Service for Credit Card Debt

The Best Debt Reduction Service for Credit Card Debt

The holidays are over and bills are rolling in. You spent way too much money Christmas shopping and your credit card debt has reached critical limits. If this is you, you’re not alone!

Most of us rack up ridiculously high credit card balances during the holidays. Now that the new year nears, you’re seeing the full financial aftermath of Christmas.

This is a great time to start on your most important New Year’s resolution- reversing your credit card debt. Get started now. It can’t happen fast enough!

The good news is that you have several debt reduction services at your disposal. The bad news is that there is no quick-fix and options may come with negative (but short-term) consequences to your credit score.

What is a Debt Reduction Service?

A debt reduction service helps you find legitimate solutions to effectively reduce debts. There are three basic types of services – credit counseling, debt consolidation, and debt reduction. Only one, debt settlement, helps you negotiate with creditors to reduce debts by up to 50%.

What are the Different Types of Debt Reduction Services?

There are three main approaches to debt reduction. Keep in mind that none of these are perfect and each may have a negative effect on your credit rating.

  1. Credit Counseling – These companies help you investigate assistance programs that help you reduce debt. They may help you qualify for these programs too. Credit counseling is not a debt reduction program because most agencies usually only help you reduce your future interest.
    1. Debt Consolidation – Debt consolidation consolidate debts into one easy monthly payment. It doesn’t really reduce debt, it just revises your account structure. In most cases, debt consolidation actually increases the term length, so you end up paying more.
  1. Debt Settlement – Debt settlement works directly with creditors to settle debt for less than you owe. As part of the program, you accrue money in a 3rd-party escrow account. Once you have a certain amount in that account, debt settlement experts negotiate on your behalf to decrease your debt by up to 50% and pay off that debt completely. Debt settlement isn’t a quick fix. It usually takes from 2-4 years to complete.

Your debt settlement expert will guide you through the process and be in regular contact to help you through this difficult and confusing process. You have the responsibility to put aside money and forward all collections notices and bills and any harassment details to your debt settlement expert.

The Pros of Using a Debt Settlement Program

Using a debt settlement program can help you in many ways. The pros include:

    • Settling your debt for less than you currently owe. In most cases, the debt settlement company will help you settle your debt for up to 50% of your balance, depending on the creditor and their policies.
    • Guidance by a dedicated debt expert through the difficult process. In most cases, the debt settlement company has a long business history with your creditor, leading to a smoother negotiation process.
    • Avoiding bankruptcy. Debt settlement is a bankruptcy alternative, and is a last resort before declaring bankruptcy.
    • Avoiding the stigma of declaring bankruptcy.
  • Ultimately saving money.

The Cons of Using a Debt Settlement Service

    • The program isn’t quick and usually takes anywhere from 2-4 years to complete.
    • The account will generally appear on your credit report as settled for less than full balance.
    • You’ll probably encounter harassment by collection companies, ranging from scary phone calls to legalese-laden letters. Your debt settlement account manager guides you through this process to help make things easy for you.
  • Since there are fraudulent companies, make sure you research debt settlement companies and choose a reputable company like Pacific Debt, Inc.

Who is the Best Debt Settlement Company to Work With

Debt settlement can be scary and involve a lot of legalities and headaches. We recommend that you work with a reputable company, like Pacific Debt, Inc., that has positive reviews from both organizations like the BBB and from clients. Pacific Debt, Inc. has settled over $200 million in debt for their customers since 2002 and our ratings prove how effective our program can be.

    • A+ rating from the BBB with accreditation and certification
    • Ranked  as one of The Best Debt Settlement Companies of 2018 by US News and World Report
  • 4.8 star rating by BestCompany.com with over 1000 client reviews available online.

For more information, talk with one of our debt specialists today.

FREE CONSULTATION

If you are ready to reverse your debt, contact Pacific Debt, Inc to see if you qualify for our debt reduction program. The consultation is absolutely free and there is no obligation if our program doesn’t seem like a good match for you. You have nothing to lose.

See if you qualify for the Debt Settlement Program from Pacific Debt Inc. Start saving money today.

Disclaimer: We are not attorneys or accountants and can not give you legal advice. If you have legal or tax questions, you should contact the appropriate expert.

Here is what you need to buy a house

What You Need to Buy a House in 2019

You are about to embark on one of the most amazing and rewarding experiences that can ever come from spending money: buying a home. If you are buying a home in 2019, you should know that the entire process is not quick, but when all is said and done, there are few things more exhilarating than buying a house. This guide will help equip you with what you need to buy a house this year.

1. Check Your Credit Score

Before applying for a loan and certainly before ever making an offer on a house, you should know your credit score. Why is your credit score important? Well, it’s not only the difference between getting a low-interest rate on a home loan versus a high one, but it will also directly impact how much a bank or lender will actually loan you. There are several websites you can use to check your credit score, here are a few to consider: TransUnion, Equifax, Experian.

You can check your own score as much as once a day without affecting your credit, also known as a soft inquiry. Hard inquiries are when financial institutions check your credit score, typically when you’re applying for a loan or credit card. Hard inquiries lower your credit score a few points, so try to keep hard inquiries to a minimum.

2. Improve Your Credit Score

Maybe you just checked your credit score and realized it’s not as high as you had expected. Don’t worry, there are a few things you can do now that will help raise your credit score so you can capitalize on a great interest rate.

Though you can easily implement steps to help your credit score, fixing or raising a credit score doesn’t happen overnight. It’s imperative to start now so when you go to apply for a home loan your credit score will (hopefully) be where you want it. Here are three tips to help improve your credit score, and recommended by John Heath, Directing Attorney at Lexington Law:

  • Obtain and Closely Review Your Free Credit Report: In order to improve your credit score, you first need to know what information is on your credit report. The Fair Credit Reporting Act (FCRA) gives you the option to obtain a free credit report from each of the three nationwide consumer reporting companies once every twelve months. Your credit report contains information including your current and past residences, how you pay your bills, bankruptcies, foreclosures and more. Obtaining and understanding the information on your credit report will help you know what you may need to address in order to improve your credit score.
  • Use a Credit Report Repair Company to Dispute Errors: Your credit history is 35 percent of your FICO score, and according to a 2013 study by the Federal Trade Commission (FTC), more than 40 million Americans have something that is incorrect on their credit report. While a late payment or derogatory mark from a creditor may seem harmless, it can have long-standing consequences, in some instances staying on your report for seven years. If you have errors on your credit report, consider working with a credit repair company, who can navigate the complexities of credit repair, contact the credit bureaus on your behalf and help remove any errors as quickly as possible.
  • Spread Credit Card Debt Across Multiple Cards: If any of your credit cards are close to the maximum utilization point, it will be a red flag to lenders, who see this as an indication that you could be having financial issues. If you have multiple cards, spreading the balance out between them could make sense. For example, instead of having one card that is 90 percent maxed out while two other cards have a zero balance, having a 30 percent balance on each card can help your credit score. Reducing overall debt is always the best option, but spreading out your balance can have a positive impact.

“Improving one’s credit score may take time, but it can be done. Bad credit is not irrevocable,”

said Heath. “Developing good habits and repairing your credit report will help increase your

credit score so you’re able to secure a home loan or a great interest rate with confidence.”

3. Know What You Can Afford

The best way to determine how much house you can afford is to simply use an Affordability calculator. Though calculators such as these do not necessarily account for all of your monthly expenditures, they certainly are a great tool for understanding your larger financial situation.

After you figure out what you can comfortably afford, you can then start online window shopping for houses and really begin to narrow down what you want in a house versus what you can afford. Are you looking at specific neighborhoods? How many bedrooms do you want? Do you need a large yard, big deck, swimming pool, man cave, she shed, etc?

Understanding what you can afford in the area you want to buy will help keep you grounded and focused on what you actually want in a house versus what might be nice to have.

4. Save Up For a Down Payment

Unless you want to pay Private Mortgage Insurance (PMI), you really want to save up for a sizable down payment. PMI is an added insurance charged by mortgage lenders in order to protect themselves in case you default on your loan payments. The biggest problem with PMIs for homeowners is that they usually cost you hundreds of dollars each month. Money that is not going against the principal of your mortgage.

How much should you save for a house? Twenty percent down is typical with most mortgage lenders in order to avoid paying for PMI. However, there are other types of home loans, such as a VA loan if you have served in the military and qualify, that may allow you to put down less than twenty percent while avoiding PMIs altogether.

As an added benefit to having a sizable down payment, you may also receive a lower interest rate that will save you tens of thousands of dollars in interest over time. So start saving now!

Saving for a down payment

5. Build Up Your Savings

Lenders like to see a healthy savings account and other investments or assets (i.e. 401k, CDs, after-tax investments) that you can tap into during hard times. What they really want to see is that you are not living paycheck to paycheck. A healthy savings account and other investments are a good idea in general as it will help you establish your future financial independence, but it is also a necessary item on your checklist of what you need to buy a house in 2019.

6. Have a Healthy Debt-to-Income Ratio (DTI)

Another key component banks and other lenders consider when issuing loans, and at what interest rate, is your debt-to-income ratio. The debt-to-income ratio is a lender’s way of comparing your monthly housing expenses and other debts with how much you earn.

So what is a healthy debt-to-income ratio when applying for a home loan? The short answer is the lower the better, but definitely, no more than 43% or you may not even qualify for a loan at all. There are two DTIs to consider as well.

The Front-End DTI: This DTI typically includes housing-related expenses such as mortgage payments and insurance. You want to shoot for a front-end DTI of 28%.

The Back-End DTI: This DTI includes all other debts you may have, such as credit cards or car loans. You want a back-end DTI of 36% or less. A simple way to improve this DTI is to pay down your debts to creditors.

How do you calculate your DTI ratio? You can use this equation for both front-end and back-end DTIs:

DTI = total debt / gross income

7. Budget for Extra Costs

There are a lot of little costs that go into buying a house that are overlooked by new home buyers all the time. Though there are some things, such as sales tax and home insurance, that can be wrapped into a home loan and monthly mortgage, there are several little things that cannot be included into the home-buying package and need to be paid for out of pocket.

Though these items can range in price depending on the area, size and cost of the house your buying, here is a list of extra costs you should consider (not all inclusive):

  • Home Appraisal Fee
  • Home Inspection Fee
  • Geological study
  • Closing costs*
  • Property taxes**
  • Home insurance**
  • Utility hookup/start fees
  • HOA fees
  • Home remodeling/updating
  • Existing propane gas

*Closing costs can sometimes be wrapped into the home loan, depending on the agreement with your lender.

**Property taxes and home insurance can be paid separately or your lender could include it into your monthly mortgage payment.

8. Don’t Close Old Credit Card Accounts Or Apply for New Ones

Closing a credit card account will not raise your credit score. In fact, in some cases, it may actually lower it. Instead, try to pay down the balance as much as you can, while continuing to make your monthly payments on time. If you have an old credit card you never use anymore, just ignore it, or at least don’t close it until after you have purchased your new home.

Opening new credit cards before buying a home is also not a good idea. You don’t want creditors checking your credit or opening new cards under your name, as you may lose some points on your credit score.

The absolute worst thing you can do is max out one of your credit cards, even if the limit on the card is low. If you do, your credit score may plummet. Try tackling your credit cards with the highest interest rate first, then as one gets paid off, focus on the next card until you’re free and clear.

9. A Solid Employment History

If you haven’t gotten the picture yet, lenders like consistency, including your employment history. Lenders like to see a borrower with the same employer for about two years.

What if you have a job with an irregular or inconsistent pay schedule? People with jobs such as contract positions, who are self-employed, or have irregular work schedules can still qualify for a home loan. A mortgage known as a ‘Bank Statement’ mortgage is becoming rapidly popular with lenders as more self-employed or what has been referred to as the ‘gig economy’ has taken off.

10. Know the Difference Between a Fixed Rate and an Adjustable Rate Mortgage

The difference between these two types of mortgage rates really lies within their names. A fixed rate loan is exactly that, an interest rate that will never change the moment it’s locked in. You will pay the same amount the very first month you pay your home loan and will continue to pay that same exact amount over the course of thirty years (or however long the loan term is).

An adjustable-rate mortgage (ARM) is typically a mortgage that starts out as a lower rate than fixed interest rates but then is adjusted each year typically resulting in a rate higher than a fixed rate. A 5-1 ARM is a popular mortgage offered by lenders, which is a hybrid between fixed and adjustable rate mortgages. Your mortgage would start out at a lower fixed rate for the first five years, then after that time period has elapsed, the rate would then be adjusted on an annual basis for the remainder of the loan term.

11. Follow Interest Rates

It is important to know what interests rates are doing. The big question is are they on the rise or are they falling?

When the economy is good the Federal Reserve typically raises the interest rate in an effort to slow down economic growth in order to control inflation and rising costs. When the economy is in the dumps the Fed does the exact opposite. They lower the interest rate in order to entice more people to make larger purchases that require loans (i.e. land, cars, and houses) to help stimulate the economy.

As new soon-to-be homeowners, it’s a good idea to know how the overall economy is doing, and more importantly, how it’s impacting the interest rates you’ll soon be applying for. In 2018, after years of bottom of the barrel interest rates, the Fed raised interest rates three times and is projecting to raise it three more times in 2019.

Why are small hikes in interest rates so important to you? To put it into perspective, even a one percent increase in your interest rate on a home loan is the difference of paying or saving tens of thousands of dollars in interest payments on your home loan over time.

12 Know How Much Time it Takes to Buy a House

The home buying process from start to finish is time-consuming and very relative to individual circumstances and the housing market in your area. However, there are some general universal constants that you can expect, such as a cash offer on a house is usually much quicker than a traditional loan, and if there is a perfect house in a good neighborhood and at a great price, you better expect competition and added time for a seller to review offers.

Depending on the housing market in your area and possibly which season you’re buying in, it can take you a couple of weeks to find a home or more than a year. But after you find your home you can typically expect the entire process from making an offer on a house to walking in its front door, to be as little as a few weeks to a couple of months on average.

13. Find a Knowledgeable Real Estate Agent

There are several ways to find a knowledgeable real estate agent. Many people rely on recommendations from friends and family, while others look to online reviews. While both of these scenarios work really well and can land you a great real estate agent, the reason these agents rise above the others as the best of the best or the crème de la crème is because of their intentions.

A good real estate agent isn’t trying to get you into a house as quickly as possible so they can earn a commission. Instead, you want an agent that will act as your guide through the home buying process, while having your best interests in mind. A good agent will be able to tell you straight if they think a house is a good fit for you, or if you should keep looking. They should also be expert negotiators so that you get the best deal possible.

14. Find a Mortgage Lender

There are a few things to keep in mind when researching a mortgage lender. The first thing that comes to most people’s’ minds is what mortgage rate can they get. You may have to shop around to find the best rate because lower the rate the more money you save.

Secondly, how does that mortgage lender rate compared to other lenders? By looking at positive and negative online reviews you can usually establish a theme pretty quickly of the strengths and weaknesses of the lender, and what you can possibly expect for a level of service down the road.

Ask the lender what their average length of time is to close on a house after the offer has been accepted?  A good lender versus a bad one can be the difference of moving into your new home two to four weeks earlier. You want to find out how streamlined their processes are.

15. Get Pre-approved

When being approved by a mortgage lender, you should be aware that there is a small but relevant difference between the typical fast preapproval for a home loan versus an underwritten pre-approval.

The fast pre-approval usually encompasses a credit report and a loan officer review and can be done in less than a couple of hours. This basic pre-approval allows you to quickly know how much you can afford and then make an offer on a house that may have just come on the market.

The underwritten pre-approval usually takes about twenty-four hours and includes a credit report, loan officer review, underwriter review, and a compliance/fraud review. Though this process takes longer, your offer on a house is actually stronger. Eventually, if you’re planning on buying a house, you will have to go through the underwritten pre-approval process anyway, so it’s better to jump on it from the start.

16. Research Neighborhoods or Areas You Want to Live

There are many variables to think about when researching your future residents. The key to beginning your research is to determine those variables most important to you. Are you looking for a good school district, a large house, convenience to commuter options, or a specific neighborhood that is extremely friendly and ranks high on Walk Score?

Your real estate agent will most likely tell you to figure out your list of the things you absolutely want in a house versus the extra features that you would like to have, but wouldn’t deter you from a house if it wasn’t there.

Your list will help your agent narrow down the number of houses they’ll show you, saving you time by only showing you houses you’d actually be interested in.

17. Shop For Your Home and Make an Offer

Now that you know where you want to live and you’re pre-approved, the fun begins. You get to look at houses! Once you find the house you know would be a great fit for you and your family, you’ll want to make an offer.

There are numerous variables to consider and hopefully, your knowledgeable real estate agent will help you through this process. Understanding the market conditions, how houses have been selling in the neighborhood and at what price (above or below asking), and knowing if there are other competing offers will help you assess and determine how you’d like to make an offer.

Negotiating an offer on a house can be emotionally taxing, so do your research and rely on your agent’s advice so you come to the table prepared.

18. Get a Home Inspection

Congratulations are in order! The sellers have accepted your offer. Now you want to get the home inspected to make sure there are no underlying issues that could cost you thousands of dollars down the road, such as a bad roof or foundation. Usually, a home inspection is a contingency built into the initial offer, and your real estate agent will help you set this up. Though you can waive this contingency if you’re trying to make a competitive offer in a hot market. Just be aware that if you do waive a home inspection contingency, you may be taking on considerable risk.

There are several types of home inspections, but in general, a typical home inspection involves a certified inspector that will go in, around, under, and top of your house looking for anything that could be of concern. Though they will go into crawl spaces and attics as part of their inspection, they will not open walls to see if the plumbing or electrical is good. However, they look for signs that could possibly point to those issues.

Then they will put their findings into a nice little booklet for you with pictures that basically becomes a miniature instruction manual for your house. If there are fixes that need to be addressed, they will certainly let you know.

19. Have the Home Appraised

Home appraisals are an important part of the process because oftentimes house prices can quickly skyrocket when the housing market is hot, and banks do not like to loan out more money than what a home is worth. A home appraiser will not only tell you what the home is actually worth for the area and for the current housing market, but this appraisal will also directly affect the size of loan the bank will give you.

If the home appraisal comes back and states that the house is worth $300,000, but you made an offer of $310,000, the bank will most likely only lend you $300k. You will then either be stuck with paying the additional $10k out of pocket, or you may try to renegotiate the price with the sellers to see if they would be willing to come down. Or you may lose the house altogether.

Also, the mortgage lender will usually set up the home appraisal so you can take this time to focus on other home-buying tasks that need to be finished up.

20. Close the Sale and Sign The Papers

Congratulations, you’re a homeowner! Your real estate agent should help you map out the last details, such as when and where you should sign all the papers to take ownership of the house and, of course, the handing over of the keys. Welcome to your new home.

Disclaimer: We are not attorneys or accountants and can not give you legal advice. If you have legal or tax questions, you should contact the appropriate expert.

This article was written by contributing author Refin

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