When Buying a Home be Aware of various types of loans; Installment Loan

July 2007 Newsletter

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So, let’s get started. From the previous newsletters; you are now well aware of what a FICO score is and why it is so important. We have reviewed the 5 most important factors that are considered in the credit score formulas are:

1. Your payment history
2. The amount of money that you owe
3. The length of time you have had credit
4. The type of credit that you have
5. How many credit Inquires

I thoroughly went through what your payment history involves and that it is very important that we change your history now… You want your scores to reflect a positive payment history; that you make your payments and you make them on time. Next I covered the concept of the “utilization rate”. This is where you should only be spending around 30% of your available credit in order to bring your scores up. Then, I reviewed the types of credit cards, the how and the why you need to use them. Last month I discussed if your credit is being reported accurately by the credit card companies. This month I will talk about another type of loan called an installment loan.

To maximize your credit score, you should have the following: a mortgage (home loan), 3 revolving credit cards, and at least one installment loan. Obviously we are working on getting you the mortgage, so when you are successful and you finally get the mortgage and the home is in your name, you will see your scores improve even more every time you pay on time. You will just keep improving!!

But, for now we need to talk about what is an installment loan. This is a purchase that you make where you sign a purchase agreement and you repay the loan in equal periodic payments. Often this is used for cars, boats, furniture, computers or large kitchen appliances like stove or washer. If you do not have an installment loan because you paid off your vehicle, you can go to the bank and take out an installment loan against your vehicle for a small amount, say $1000.00 and then pay it back as specified in equal payments. The bank then reports your payments to the credit bureau and your scores will improve. Only do this if you do not have any installment loans and you are going to pay it back like clockwork. This shows the credit bureaus that you can manage a loan responsibly and pay on time, every time with out defaulting.

Once you have an installment loan on your credit report it is extremely important that you pay it on time each month. That car loan that you only pay when you can is not good enough. It must be paid in full on time every month. You may want to consider online or automatic bill pay for these types of loans to ensure you make your payment on time and do not let it slip your mind.

If you are late or delinquent on your installment loan it can dramatically decrease your credit scores.
Having an installment loan is a big obligation. Most people forget after the big purchase that it is vital to make these payments on time each month.

The other thing you need to be aware of is this. If you are very close to getting a mortgage, never go out an get an installment loan like a new car or new appliances, this will bring down your score initially and could stop you from getting financed.

Getting into your new home brings feeling of excitement and pride. You want your home to be all that you dreamed, but remember you need to get that home in your name with the title and mortgage in your name first, so that you can truly get all the advantages of owning your home. Once the home is yours, then make all the improvements that you want. You will get more equity and tax benefits by closing on the house and getting the mortgage in your name and then updating or improving your home. Use your extra funds now to improve your credit so you can take advantage of the still low interest rates that are available. Call your finance specialist and make sure you are on track and doing everything that is needed to improve your scores.

This month we are heading into summer in full force. The kids are out of school, the yard needs to be spruced up and you want that little vacation to treat yourself! I hope you are successful in making the most of the great weather and any time off you may get in addition to working on your credit scores!

Dedicated to improving your credit and making you a home owner,

Lori Jake
EZQualDreamHomes.com
Swiftcurrent Investment Group, LLC

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