Credit scores are so important when you’re getting ready to purchase a home. This metric helps loan officers determine your interest rate and also which loan programs you qualify for. In this six part series were going to give you the information you need to know in order to raise your FICO® score and increase your ability to qualify for a home loan.
Part 3: Have Low to No Balances on Your Credit Cards
As we learned in Step 2 of our Ways to Increase Your Credit Score series, having a healthy debt-to-income ratio is a key metric for having a high credit score, but another key to have low or no balances on revolving debt accounts like credit cards.
Individuals with high credit scores have developed the habit of only putting items on credit cards that they can pay off with cash. They use the credit cards as a means of payment and not a loan. Thinking of credit cards in this manner can help.
Unlike the other steps in our series the low or no balance on credit cards has one simple step:
Only charge amounts you can pay in cash
In order to have a healthy credit score you will need a mix of open credit accounts, this includes a credit card or two. Smart consumers will use the credit card as a payment option, but not as a loan. For example, the individual with a 800 credit score will use the convenience of his credit card at the gas pump – but then pay the balance off. He’s not putting a vacation or other items he can’t afford on the card.
Stay tuned for the next part of this series: Have a Long Credit History.
Missed the previous steps? Make sure to check out
Part 1: Paying Your Bills On Time
Part 2: Using Credit Correctly