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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.
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.
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Signature loans are generally pretty easy to get. It is easiest when you have a good credit history, but not impossible to get when you have bad credit. These type of loans are founded upon a single signature. You do not have to put up any collateral up to get a signature loan. This is one way in which it differs from most loans, including the usage of credit cards.
Which is better?
There are pros and cons to both signature loans and credit cards. Which one is right for you is dependent upon your financial situation and the kind of spending you want to do on credit.
Credit cards
The good thing about credit cards is that you almost ultimately control how much you get to spend on credit. If you have a good credit history, you can qualify for a very large amount of credit. You can choose, within that amount, what your credit limit will be. With signature loans, often times the maximum amount you can borrow is ten thousand dollars. Of course, in some cases, having a smaller limit on how much you can borrow might not be such a bad idea. It all depends on your spending habits and your ability to pay the money back.
The payments you make on your credit card depend on how much you spend. The larger the balance on your credit card, the more you pay monthly. With signature loans, you pay a set amount every month, or even every two weeks. This depends on how much money you took out on loan, but it does not vary depending on how much of that money you spend or what you use it for.
Signature loans
When you apply for a signature loan, there is no requirement of collateral. The thing that they lenders look for is a good credit rating. This assessment alone will determine whether or not you qualify for a signature loan. Once you qualify, all they need is your signature, and you have the loan. Sometimes it’s easy to forget that it is STILL borrowed money, that you must pay back.
Interest rates on signature loans are based also upon the applicants credit rating. It is not impossible to get a signature loan if you have bad credit, but you will better chances and lower interest rates on your loan if you have good credit. With credit cards, a larger variety of people can qualify for credit cards with low interest rates, even if they don’t have great credit ratings. The problem with credit cards is that, usually, if the person has a bad credit rating, they probably will not be able to pay back the money they would owe on a new credit card. Still, credit cards are offered to many people regardless of their financial abilities.
Whether a signature loan or a credit card is best for you depends on how much you want to spend, how well you can control your spending habits, and how well you can make your set payments.
