One of the first things to find out before you apply for a home loan is your credit score, making it important to maintain your credit during the holiday season.
Improving your credit score can be fairly straightforward. Two key components are to not overspend during the holidays and to pay your bills on time. Resisting the urge to overspend pays dividends all year by reducing your debt burden and the potential for late payments.
Create a holiday budget
One strategy for managing spending during the holidays is to create a holiday budget. The first step is to create all the expense categories, or a list of people you anticipate purchasing gifts for during the holidays. After the list is set up, you can set spending limits for each group or person and further refine it by denoting specific gifts and spending objectives. If you want to get someone a gift but can’t fit them in your budget, make them something instead. It’s often cheaper to make something than to purchase something.
The final step for the budget is to keep track of your expenses. You can create, or find online, a simple spreadsheet that calculates your remaining budget every time you make a purchase. As you track your spending habits, it will be easier for you to determine what holiday purchases are necessary and what ones you must forfeit to remain within your budget.
Pay your bills on time
Even if you set up a budget and stick to it, you are likely to incur some bills, or you may have preexisting debt. Make sure you can stick to your budget and pay off your holiday debt in a timely manner to avoid incurring interest on your new debt.
To keep your credit as healthy as possible, it is wise to employ a bill paying strategy. Two essential principles for paying off debt are to focus on the highest interest accounts first and to pay more than the minimum amount. Paying the minimum does not sufficiently reduce principal and leads to additional accrual of interest.
Overspending, particularly making purchases with a credit card, can stress your budget and lead to credit problems down the road. Stick to your budget and don’t overspend during the holidays. The amount of debt that you have and your ability to make timely payments on that debt contributes to 30% of your total FICO score, so managing your debt load is vital to maintaining good credit.
Many people incur debt during the holiday season that they still haven’t paid off by the end of the following year. Make a plan and stick to it to ensure you can pay off any new debt in a timely manner.
Clean up accounts
If you do have a late payment, it is worth contacting your lender to see if they can forgive that payment. It is always better to communicate with a lender to determine what your options are to pre-empt potential negative reporting and to determine whether there are interim steps – such as reducing the amount you owe temporarily – that will allow you to make timely payments.
If you have had debts go to a collection agency, you can contact the agency to determine whether they will remove the account from your credit report. If they do not agree to this, then prioritize other debt repayment and only agree to pay if you can secure a pay for delete letter from the creditor.
At First Centennial Mortgage, we are dedicated to providing helpful advice to our customers. Contact us today to learn more about how you could save money on your home this holiday season.