Credit help ahead of any major money decision

When a consumer is making a major financial decision of any kind, there’s a lot of factors that likely go into it. This can include purchase price, affordability, availability of credit, and the like, and all will impact their ability to make such a decision.

For this reason, before they make any moves, there are a number of things they should do first, and it should start with determining their credit standing to see if thereis any roomfor improvement. This is an important first step because their credit score will not only impact their ability to find financing for the purchase, but also is used to determine just how affordable that financing is. As such, the better one’s credit, the less they can expect to pay over the life of the loan.

When making more modest purchases
For consumers who want to make a purchase of a few thousand dollars, whether they’re buying new furniture for the living room or a set of appliances for the kitchen, it’s important to determine where they stand with regard to their credit rating for a few reasons. The first and most obvious is that when obtaining new credit, better scores get borrowers access to better terms and conditions. That potentiallymeans lower interest rates, fewer fees, and perhaps access to more beneficial rewards programs, all of which can greatly increase the value of such a purchase.

So how does one maximize their credit score ahead of a major transaction? The easiest way is likely to make more efforts to cut debt. By doing so, this not only clears space against credit limits, but also ensures that when the purchase is made, monthly payments will remain somewhat more affordable. The amount being borrowed across all credit cards versus the total limits on those accounts makes up 30 percent of a borrower’s credit rating, so paying down balances before adding to them with a purchase that can run to thousands of dollars is likely a wise idea.

Further, for those who want a new credit card with which to make such a purchase — for instance, a new rewards account that grants you significant cash back — they’ll be able to get less expensive terms and better value with a higher credit score.

When investing in a car or truck
Of course, when making a slightly larger purchase, there are other things to consider. Though financing for auto loans is generally readily available to most borrowers, as with credit cards, it might not always be easy to get the most advantageous terms unless one’s credit score is maximized.

The above tip about the importance of reducing existing outstanding balances holds true here as well, and with that will likely come more on-time payments, which accounts for another 35 percent of a consumer’s credit rating. These two factors together will likely help to ease the terms of auto financing considerably, but it may still be vital to keep other credit score factors in mind. For instance, it’s probably wise to avoid seeking other types of new credit ahead of applying for an auto loan because the number of inquiries made in the last few months or so accounts for another 10 percent of the score.

When seeking a mortgage
Finally, because a home loan is the biggest purchase most consumers will make, work on fixing credit should begin several monthsprior to beginning the process of shopping around. That means drastically reducing outstanding balances, making sure all debts are current and have been for a period of six months or more, avoiding other financing requests, and then taking into account the two remaining credit score factors.

The first is the average length of time a borrower has had all their combined accounts, and longer is considered better. Therefore, that means when reducing outstanding debts, one should make sure to keep any accounts with zero balances open as a means of buoying this factor, which makes up 15 percent of one’s score.

The second is ensuring one has a healthy mix of different types of credit. Whether it’s a mixture of credit cards, student loans, auto financing, and other types of borrowing, more is considered better here as well, because it shows lenders a potential homeowner can handle multiple balances at once. This factor makes up the final 10 percent of one’s score.

Of course, consumers should also take the time to order copies of their credit reports ahead of any major financial decisions, because it will allow them to check for any unfair markings that may be unduly dragging down their scores. If any are discovered, working with a credit repair law firm may help to fix the problems.