Which Is Better: Your Credit Card Or Your Home Equity Line Of Credit?

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So you bought a beautiful mansion with a home equity line of credit about ten years ago on a twenty year payment plan. You are getting nice and cozy in your new dwelling, but you still have ten more years before it is completely paid off. So you sit there and think about how good you’ve got it, at least compared to the early days when you lived in that one bedroom apartment. But do you really have the best deal you could get? Are you paying more than you need to on your home? You could be, and here’s why.

Using a home equity line of credit has been, through the past, the wise thing to do when buying a home. The interest rates on home equity loans were way cheaper back then, but lately they’ve almost doubled from 4% to around 8%. So is there a way you could save a little money on interest while making payments on your house? There very well could be.

Ever thought of using a credit card?

Many people think the mere idea of transferring your loan from a home equity line of credit to a credit card is absurd. But think about it. The interest rates on a home equity loan are higher than many credit card rates. Using a credit card to pay off your home loan could save you money by lowering your interest rates.

When shopping for the right credit card, remember:

The kind of credit card you use is what will determine whether or not you save. If you shop for a fixed low interest rate on a credit card you’ll save.

The credit limit is important too. It is best and most healthy for your credit score if you find a card that will allow you to raise the limit to about double the amount you owe on your home. That way, once you transfer your balance, it won’t appear to creditors that you came too close to your limit.

Once you have the balance transferred

The worst thing you can do is make a late payment on your credit card, especially since you have such a huge amount to pay back. You should always pay at least the minimum of what you owe so that your interest rates won’t get hiked up. Paying late on credit cards allows them to increase your interest rate dramatically, making you pay even more than you would if you had kept it on a home equity line of credit. Not to mention the fact that late payments show on your credit report. It may be wise to keep your home equity line open so that if this happens, you could transfer the balance back.

Whether it’s a home equity line of credit or a credit card that is the best way for you to pay off your home loan is up to you. Depending on your circumstances, transferring your home loan to a credit card could save you a lot of money.

Top 5 Ways To Build Your Credit Score

There are several things you can do to ensure that your credit score improves. Obviously, the higher your credit score is, the more options you have at your fingertips. Here are the top five things that will give you a higher credit score and a long, healthy looking credit history.

1. Pay your bills on time

One of the most important things that creditors see when they look at your credit history is your payment history. This can make or break a good credit score. When creditors see someone who has trouble making payments on time, they see someone who is not dependable with credit cards. Because you don’t appear to be dependable, your score will go down and you will be less likely to receive credit in the future. So if you strive to pay on time one hundred percent, your credit score will not only stay protected from falling, but it will actually increase gradually.

2. Keep old accounts open

In most cases, the older the credit card account, the better it is for your credit score, even if that account is not active. Having an old credit score shows that you have a long credit history, and allows creditors to see how well you managed that credit card for a long period of time. If you have not managed that card well and have made late payments on it, closing it out will not help then either. Having bad records like that will stay on your credit report for several years, whether or not the account is closed. Only time and better credit management can heal the damage done to your credit report in the past.

3. Using credit cards

Just the fact that you have and use credit cards is a step up to a better credit score, though only if you handle them well. If you make your payments on time, and spending only the amount that you know you can pay back, your credit score will benefit from the mere usage of credit cards. Paying off credit cards regularly is a big boost. When you’re still in school, it can be a good idea to to apply for student credit cards just to get things rolling.

4. Keep the number of credit cards low

Sometimes creditors will see someone with several credit cards as a potential risk. When you have a lot of credit cards, you have more of the potential to overspend, and therefore not pay the money back on time or in full. The number of credit cards you can manage and how much of a risk you are at is up to you, but keep in mind what looks good to your creditors.

5. Keep the balance low

When you have credit cards, it’s good to keep the amount you spend within fifty percent of your credit limit. Why? If you keep the balance below half, you will not go over, or even come close to maxing out. When you hit the half way mark, it’s best to pay off your credit card, or at least pay it down to a smaller amount.