(Keck) The current financial crisis has left many wondering about their chances for getting a loan. Mortgages, for instance, are more difficult to get.
But financial experts say you’re much more likely to qualify if you rein in credit card debt and get smarter when it comes to using your plastic.
VPR’s Nina Keck has more.
(Keck) The good news – if there is any in the banking world these days – is that money is still available for mortgages. The bad news is it may take you a while and you may have to pay more to get one. Joe Rodolfy is a mortgage banker in Rutland.
(Rodolfy) "It’s not such a quick, they’re in you get them a loan and they’re out. You have to work with them and maybe even put them on a little budget so they can get their savings to where it should be."
(Keck) Having money in reserve – a savings or retirement fund – is important because it shows lenders you can save. Having a long history at your job is also good. What’s not good? Too much credit card debt. Erika Glidden, a mortgage specialist at Opportunities Credit Union in Burlington, says having a balance over 30 percent to 50 percent of your maximum is a sure way to hurt your credit.
(Glidden) "What people don’t understand, even if they’re making their minimum payments on time – they’re paying at least their minimum payments, sometimes they’re paying more – it’s still affecting their credit score negatively because they’re maxed out or they’re above their limit on their credit card. And they usually have five, six seven – sometimes up to 10 credit cards."
(Keck) She says pay off those balances as fast as you can. But if you can’t, Joe Rodolfy recommends consolidating your debt onto one or two cards that have a higher limit. That way, he says, you can avoid that costly 50 percent threshold.
(Rodolfy) "But here’s an interesting thing: Don’t close out those accounts. Bring them to zero, cut up the card, but don’t close the account. Because having the extra capacity – in other words having the open account with nothing on it – is better for your credit score than closing the account out."
(Keck) And one last piece of advice. Rodolfy says don’t sign up for store credit cards – you know the ones where the saleswoman says you can save an additional 10 percent if you apply for their card.
(Rodolfy) "They’re probably the worst thing you can do for your credit because it’s like a triple whammy. And I’ll explain it to you. You go into Home Depot and you want to buy a $500 grill. Well, they generally open the line of credit for the amount outstanding for what you are buying. So, here’s what happens. First they’re checking your credit, which if you do it often enough is not good for your credit score. Then they open a line of credit, which increases your amount of borrowing that you have in general – and then they max it out. So you’ve not only opened a line of credit, but you’ve maxed that line of credit."
(Keck) Too many of those and, Rodolfy says, your credit rating can drop significantly – to the point where you’ll pay a higher interest rate – or worse – not get the loan.
For VPR News, I’m Nina Keck in Rutland.