Need tips on financial planning?
this is my situation. Im 23 my husband is 24 and we have a child. We rent our house, drive a wrecked 03 mazda, and have no credit. My husband works construction and his current job is said to last for the next year and a half witch before his jobs were only lasting a few months so we never tried to save or anything. We just got our first credit card and we are only using it for gas and paying it off weekly.
Eventually we want to buy a decent car and a house but have no idea what we should do to prepare. Is the credit card thing enough or is there more we can do? We would like to buy a car (from a dealership) in about 6 months or so. what are some suggestions on what we should do before with things like credit and saving. And advise about buying a house? Thanks!
- JRWLv 68 years agoFavorite Answer
Getting a credit card was a good move to build up your credit, but be sure to continue to pay it off in full every month. Carrying a balance on your card won't hurt your credit score, but it will cost you an arm and a leg.
You need credit to get a loan for a car or a house. In a nutshell, you build and improve your credit by:
--Always paying all of your bills on time; even a late cable, electric, or gym membership bill can ding your credit score.
--Not closing old lines of credit because the age of your oldest line of credit (e.g., a credit card) impacts your credit score.
--Not having too much available credit. I think the rule of thumb is that you don't want to have more than 25% of your household income in available credit. So if your household income is $50,000, then the spending limit on all of your credit cards combined shouldn't exceed $12,500.
--Having a diversity of credit accounts. Lenders like to see that you're capable of servicing different kinds of debt: utility bills, credit cards, auto loans, mortgages, student loans, etc.
Those are the main ones I think. That's how you build credit in order to qualify for any kind of loan. However, I should also mention that it may not make the most financial sense for you to get an auto loan. Auto loans typically have lower interest rates than credit cards, but they're still relatively high for all but the most creditworthy borrowers. You would probably be better off saving for a vehicle and paying cash. My personal rules for borrowing are 1) never borrow money to buy something that depreciates in value, and 2) never borrow money at interest greater than the long-term average real rate of return on the stock market (about 8.5%).
Regarding your goal to buy a house, back before 2007, you could get a mortgage pretty easily without a down payment and with spotty credit. Nowadays, you'll need to have saved up a down payment of 10-20% and a decent credit score. But with so many people's houses underwater (the house being worth less than the mortgage), you might be able to find so-called seller financing, also called "rent-to-own". That's where you pay a little bit higher rent each month, but a portion of the rent goes towards a down payment to eventually buy the house.
- Anonymous8 years ago
Credit cards are the World's most expensive loans, getting a normal loan through a bank it much cheaper than paying the credit card interests all year. I suggest keeping track on your expenses for a month or so to know how to save atleast a decent amount of money. Use softwares such iExpenseit on iphone or any financial/saving tracker on your PC. It will help you track every penny your spending