Q&A: Paying off debt to get a better rate for buying a house.?
Question by Ervin: Paying off debt to get a better rate for buying a house.?
I’m currently paying down what I owe on my credit cards. When I receive my tax refund… I plan on paying it off. March of this year I will be debt free. Will that raise my credit score? I’m asking because in a about 1.5 to 2 years I want to buy a house with good credit.
Best answer:
Answer by Toni
Using less than 30% of your available limits is what keeps the scores up.
Ex: $ 1,000 limit – never use more than $ 300 at any time during the month.
That’s why experts will tell you:
Use your card for small things you need like food or gas and pay in full each month.
Make sure you do not close those accounts when you are finished paying them off.
You want to keep payment history, and you want to keep it ongoing.
By paying in full you never pay interest and can get those top scores.
A years worth of paying in full each month should get you a pretty good rating.
Enjoy purchasing your new home someday.
Give your answer to this question below!
Having no debt will make potential lenders happy. Showing that you accumulated debt and always paid on time is better for your credit score than never having had any debt in your life. You should continue to charge things on your credit cards and pay them off in full after you’ve gotten rid of the existing balances.
Congratulations Erv, that’s great! It’s hard to take the bull by the horns, pay down debt, and stay debt free. It means changing all the things your considered “normal” just a short while back. To answer your question, yes. The act of paying down your bills will be noted by the three credit bureaus, and your credit score…is already rising. Not only will you qualify for a better interest rate on your mortgage, but your house insurance, and car insurance ( called “Insurance Score” ) will go down as well. Don’t weaken, hang in there and keep on what you’re doing for the long haul. You are on the verge of fantastic opportunity. I’ve been debt free for three years, even my house is free and clear. There is no feeling like it! Great Job, keep it up!
That would increase your credit score some. In the two year period I think interest rates will be higher, and that is a shame for you because if they go up from almost 5% to 6% that is about the same as an additional 13% on the loan balance. So if home prices stayed exactly the same it could be the same as if your $ 150,000 effectively became a $ 170,000 or so. If you bought now at the lower prices and lower interest rates it might be best. But do not over extend yourself.