October 1, 2020
3 MINUTE READ
Use Pre-Paid Cards and Get a Better Home Loan.
Your credit profile is the primary tool that will be used to evaluate your position as a borrower. The difference between a credit score that is high enough to qualify for premium rates and lower fees and one that falls just short of that standard could mean saving several thousand dollars in interest payments over the life of the loan. There are several ways in which a potential borrower can improve their credit profile. Some of the more common methods for elevating a credit score can take months to affect a person’s overall creditworthiness. One method of quickly raising a borrower’s credit score requires the use of pre-paid or secured credit cards.
A secured credit card is a credit account that is based on a deposit made by the account-holder. In some instances, an account-holder can deposit a sum less than the amount provided by way of the card’s credit limit. An example of this would be an applicant who deposits $500 and receives a secured card with a $750 credit limit. In this example, the $500 deposit works to secure the line of credit while the additional $250 is unsecured – the method of credit is usually associated with credit card accounts.
Once the applicant has made the appropriate deposit and the credit card is issued, the account holder can use the secured credit card to build their credit profile and raise their score. This is achieved by using the card normally, though making a purposeful effort to use the card instead of other payment options is advised as it will work to increase your credit standing sooner.
One critical consideration of this process is to ensure the financial institution through which you obtain the secured account reports your activity regularly to the major credit bureaus. A bank that only uses your account activity and payment behavior for internal evaluation is of no use to a person seeking a remedy for a borderline credit rating.
1. Spend as much of your monthly budget using the secured credit card to allow for the maximum level of activity on your account and reflect the most significant possible impact on your credit score.
2. Pay the bill for the secured account as soon as possible. Oftentimes you will be able to find the balance due before receiving a paper statement or having a statement made available online.
3. Pay more than the balance due to force a report to your credit profile of a credit balance. A credit balance is a report that shows – in essence – that the bank owes you money—paying $1 more than the account’s full balance will trigger a credit balance and the subsequent report to the credit bureaus.
4. Choosing a bank that reports regularly, shifting your spending to the new secured account, and diligently paying the outstanding balance will do wonders for your credit profile in a relatively short amount of time. This boost in your credit rating will allow you to take advantage of all of the benefits offered by your lender reserved for those more highly qualified applicants seeking the best rates and lowest fees.
Have questions? Reach out to our Reali Loans team.
We’re here to help!