Gift giving is a common way to show love and gratitude during the holiday season; however, maxing out your credit cards is a big no-no for those with a home loan in their future. Read to learn why!
What is the Big Deal About Maxing Out Credit Cards?
When you max out credit cards, it has a negative impact on your credit score due to high usage. Any time credit card usage is over 30% of the available limit, it has a greater negative impact on your score. A lower credit score often gives you less options and higher rates when applying for a home loan. You should always work to keep your credit score at 640 or higher, as this is the preferred score for most lenders.
Maxing out credit cards may also increase your debt-to-income ratio, one of the main things a lender looks at when considering your loan application. The higher your debt-to-income ratio, the less options you have in terms of loan programs. Lenders look for your debt-to-income ratio to be 43% or lower for most loan scenarios.
In addition to decreasing your credit score and increasing your debt-to-income ratio, maxing out your credit cards can create a dangerous snowball effect. Depending how long it takes to pay off your credit card/s, it can lead to more of your money going toward additional interest and fees.
Other Options Versus Maxing Out Credit Cards
Take some time to really think about those you love and the gifts they may appreciate most. Maybe they would love a service you could provide - a few nights of babysitting, a house deep cleaning, pet sitting vouchers... Many times these gifts may be more valued than anything you could buy!
Whether it be a service, something homemade, or something you buy without breaking the bank, one thing is true: Those who love you want the best for you! They will appreciate any gift that shows you put thought into them, AND they will be glad you are working toward making your personal goals reality.
On that note, do those who love you know the personal goals you are working toward? Now is a great time to make sure they do! Holidays are a perfect time to ask for funds toward a down payment in lieu of gifts (see Tip #6!).
Take Your Next Steps Today
Taking your next step today will bring you closer toward the reality of homeownership.
If you are thinking about buying a home in the future, talking to a licensed, professional mortgage expert is your first step. They can give you an honest assessment of where you currently stand, and suggest some steps to make home buying a reality.
At O Capital Group, we are happy to provide a no-cost phone or in person consultation. Call (602) 492-8930 today to connect with someone who can help you learn more.
Or, get started on your own through Blink - a safe, secure online loan application you can use on your own time:
Keep Us Posted On Your Journey Have you set boundaries this holiday season to make your home goals reality? Let us know an accomplishment you've had, or a challenge you are working to overcome. We'd love to learn from your journey! Leave us a comment below.
At O Capital Group, we make home loans easy!
Call today: (602) 492-8930
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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.