This morning in the Finance Headlines, we’re talking about how to get approved for a home loan. In the Credit Tips blog, we’re thinking about some odds and ends related to buying a home:

 

In addition to paying a hefty down payment for a new home, there are other costs that will crop up when you are buying a home. Money for closing costs, the costs associated with finalizing the loan, will take a bite out of your savings.

 

Order your credit report one year before you decide to buy a home. Look for problem areas and get them resolved as quickly as possible. In addition, pay bills on time each month or pay ahead if you can in the year leading up to the time you want to buy a home.

 

A cash back credit card or a rewards credit card can help improve your credit history and provide you with extra money after you buy your home. These rebate credit cards give you cash back or rewards for using the cards to make purchases. A rebate credit card can be a big money saver when you’re making big purchases like buying furniture, appliances or other items for your new home. 

Did you know that most any credit card has some type of rewards plan.  Not all do, but most do.  Back when I was a young newb, I didn’t know this and was surprised to find that my credit card had a rewards plan.  Over a couple years, I’d built up around $300 worth of rewards points, which I could use to buy a selection of cheap gifts, cash out, or put the money back into the credit card.  I chose the last option because if I cashed out the $, it would just have gone back into paying the bill anyway.  

Any rewards card is going to have a better payout than $300 in three years of fairly-regular credit card use, but not all rewards cards are alike.  Here are a few steps you should take when both selecting rewards card and how you should use the card once it’s in your wallet. 

1. Try and pay off your balance every month.  I’ve got to emphasize the word “try” because for most people it’s pretty unrealistic that they won’t carry a balance.  But if you pay off your balance every month, you’ll reap the benefits of building up points with every purchase without going into debt.  The more you can use your rewards card like a debit card, in which each purchase will be paid off, the better.
2. Avoid fees.  Annual fees can cut into what you make via a rewards plan.  An important thing to remember is this: credit card companies don’t like to give away things for free.  If a card has a lower interest rate, it could have higher fees.  If it has a generous rewards plan, it might have higher fees and higher interest.  You need to find a healthy balance on the card.
3. Be sure to choose a card that is a match for your lifestyle.  Drive a lot?  Get a gas rebate card.  Fly a lot?  Get an airline card.  Want cold, hard cash?  Check to see where you can build up the most rewards points with the card.  
4. Finally, factor in how putting the money back into the card will save you money.  For example, you might not even be interested in the money you earn from rewards points – you may instead be interested in making your credit card a little cheaper.  Rewards dollars put back into the card can offset what you lose to interest and fees, ensuring that you don’t go too deep into debt.  Generally, it’s recommended that you cash out rewards points or put the money back into the card, rather than buy merchandise.  The time you want to buy a product is with a product-based card, such as an airline card or store-specific card.   

It’s time to scare you.  If you haven’t been scared straight into saving up for retirement, you have to look at some of the measures people are taking to afford retirement.  You know that life insurance account that you’ve dutifully been paying off for years?  Well, people are so taxed due to medical bills, debts, and other costs that their tapping into life insurance accounts.  There are services that will buy out a life insurance policy, normally for a fifth of its actual worth.  

401(k) plans and other retirement accounts are really being tapped into.  One of the reasons that people go into such serious credit card debt is because they want to avoid tapping into a savings account.  Some even justify the move by saying that they’re being more responsible by leaving the retirement account alone.  This makes no sense.  Spending on credit today could potentially – and likely – drain that savings account of more money in the future.  Really, you’re just delaying the pain for longer and making it worse.  

On the flipside, people tap into retirement accounts for the express reason that they’ve maxed out their credit lines, such as a home equity line of credit.  Credit cards couldn’t even begin to cover the expenses covered by a good line of credit.  What’s more, these homeowners don’t want to go into increased debt – realizing full well the damage of a high-interest credit card – and are instead tapping into a 401(k) plan.  With home values plummeting, this is increasingly necessary, as homeowners aren’t able to squeeze out as high a line of credit on the equity they own.  

So what’s the alternative?  For those in the above predicaments, it may unfortunately be a case of too little too late.  You have to pay for daily expenses somehow, and short of making a golden investment or winning the lottery, there is no magic formula for making a quick mint.  Instead, this is aimed at those people – perhaps in their 40s, where retirement is on the distant horizon – who are not taking retirement accounts very seriously.  What they may be doing is putting money into a simple account like a 401(k) and consider that responsible.  Like any form of investment account, diversification is key: retirement accounts, savings, and investments, that are a mixture both blue-chip reliable stocks and stocks that are more of a gamble, with a high payoff.  

You just never know what events lie around the corner.  You have to anticipate both personal issues, such as health problems, or a major human event, such as a war, that will change the current outlook.  That’s not pessimism, that’s realism, and as things become more volatile, this sort of foresight is important.

In some cities, you have to be able to put down one year’s rent in order to get an apartment when you have bad credit. You may also have to put down a larger security deposit in order to get approved for the apartment you want when you have poor credit. Other ways to rent an apartment when you have bad credit:

 

• You can often tell from the apartment listing whether the landlord runs a credit report. If the property is owned and managed by an individual instead of a property management company, they are more likely to approve your application even if you have poor credit.
• A co-signer can help you rent an apartment when you have bad credit.
• If at all possible, have negative items removed from your credit report by working with the collections agency or reporting company. Applying for a low interest credit card or a balance transfer credit card might also help you rent an apartment when you have bad credit. Moving high interest debts to low interest or zero percent interest credit cards can help you pay off your debt more quickly.

 

If you can’t get approved for a traditional credit card due to poor credit, a prepaid debit card that reports to the credit bureaus might be the right choice for you.