I want to purchase a home in about a year and I want my credit report to be in good standing. My concern is on my open balances. One account is with the lender of my vehicle. The pay off amount is $4900 and I've had this account open since March 2003. I am wondering if paying off the balance right now would be a good idea or should I wait one more year to finish paying off the balance? Again, my purpose is to show good credit history. My concern goes on my credit cards too. I have three credit cards and the three total about $1800. I was wondering if I should pay them off too? Can someone guide me here. Please. Thanks
I would pay off the car. I would pay down the balances on the cards to about 3% - and that's just to keep your scores up. When buying a house, sure your credit score will matter, but a huge part of qualifying for a good loan is debt to income ratio. If the "minimum" out going on your cards is $65 a month that isn't so bad regardless of the amount you actually owe. They want to know the minimum going out. Of course paying $300 a month to a car payment hurts because that money, according to the lender, could be better used towards the mortgage. They don't care that the car loan is for a million dollars, they are just concerned how much your minimum payment is each month.
thank you for your advise. What else do you think I should consider to bring my score higher? My score was 548 about two years ago. I know that I need to check what it is now, but with that score, what do you suggest I do to raise my score?
Generally, the amount you owe doesn't matter, but the monthly debt is a critical factor. Read up and calculate your ratios, but your total debt - mortgage/taxes + monthly payments - should fall under 38%, give or take a few points. More importantly, if you're a year away, you need to show stability in your savings and no drastic movement of funds for your down payment. So you might be better off applying that extra money towards a savings account if your debt ratios are ok.
help.. how do I calculate my ratios? my total monthly debt is $644 that is my car payment, car insurance and my three credit card payments.
Here's a debt to income ratio calculator. Great website too. https://www.ihatefinancialplanning....lcId=39&sredir=1063:402bef3e:da7eb3f922ea66b7 If that's too long then just go to www.ihatefinancialplanning.com and click on calculators and it'll be on the drop down menu. I highly suggest paying off the car and the cc's...we just went through this. Good Luck! ) DVS
