Unlocking Your Dream Home: Successfully Apply for a home Loan with a Credit Card
One common nuisance for homebuyers is the frequent rejection of their mortgage applications due to credit card issues. Banks often use credit cards as one of the criteria to assess the creditworthiness of mortgage applicants, regardless of whether the credit card is still active or has been canceled. Furthermore, the complete payment history is recorded in the credit bureau. This information can determine whether an individual has a strong financial background when seeking a home loan.
Therefore, for those who have plans to apply for a home loan in the near future, it's high time to manage their existing credit cards effectively and maintain a good credit history that is ready for mortgage approval. In this article, we will explore various techniques for utilizing credit cards to make the home loan application process smoother. Get ready to enhance your chances of successfully 'Purchasing a Home' through these tips and tricks.
How does credit card usage behavior affect applying for a home loan?
Did you know that frequent credit card delinquencies or a tarnished financial history can heavily impact your chances of securing a home loan? Banks view such behavior as a lack of debt repayment discipline. However, efficient credit card usage builds good credit and portrays us as financially responsible individuals, making it easier to obtain loan approval.
Credit Card Tips That Help You Get Approved for a Home Loan
The following are credit card tips for you to get approved for a home loan application:
- Thoroughly evaluate your installment payment capabilities
If you don't thoroughly evaluate your installment payment capabilities and you're consistently overspending, maxing out our credit cards, you could be in a lot of trouble. When combining housing debt or other liabilities, if the total exceeds 40% of our monthly income, banks will perceive us as burdened with excessive debt. This can significantly hinder the approval process for a home loan.
- Pay no more than you're able to afford and Repay in full
A smart credit card strategy involves using it within your means, not maxing out your credit limit. Emphasize repaying the full balance rather than just the minimum amount. Consistently meeting payment deadlines without exceeding them contributes to a positive financial track record. Moreover, this responsible credit behavior is recorded by credit bureaus, benefiting us when applying for a home loan in the future.
- Refrain from withdrawing cash from your card
Because cash advances come with exorbitant fees and high interest rates, it is crucial not to view credit cards as a source of borrowing. Instead, consider them as a convenient alternative to cash payments. If we frequently rely on cash advances and fail to meet the repayment deadlines, banks will perceive adding a housing debt as worsening our financial situation. This is highly unfavorable when it comes to pursuing a home loan, making it inappropriate to proceed with the homebuying process.
- Don't make a habit out of paying for items via installment payment
For frequent shoppers, using credit cards to finance purchases may seem tempting. However, if you inadvertently carry credit card debt and it reflects on your credit bureau history, it can reduce the income available for assessing the borrower's repayment capability. Banks need to deduct the burden of credit card payments from the borrower's income. Consequently, relying on credit card installments for shopping can negatively impact the borrower's income assessment, which is unfavorable when seeking a home loan.
- Cancel out unnecessary or unused credit cards
Having multiple credit cards increases the risk of overspending and accumulating larger debts. Therefore, to demonstrate to the bank that the cardholder uses credit cards responsibly and does not have the potential to create significant debts, it is advisable to maintain a moderate number of credit cards. This helps ensure that the borrower's credit card usage remains controlled and minimizes the risk of competing debts with the housing loan.
- Pay off credit card debts before beginning the loan
The final issue that causes many people to be denied home loan applications is credit card debt. If there are outstanding balances, banks perceive the borrower as lacking the ability to make timely repayments and lacking discipline in managing expenses, which hinders the approval of the housing loan. It may also require a significant waiting period before reapplying for a loan (duration depends on the bank). Therefore, it is crucial to settle credit card debt before applying for a home loan.
Credit Card Debt-clearing tips for convenient home loan applications
- Observe your debts
One of the first steps to debt reduction is to evaluate all your current short-term debts. This will help you understand the actual size of your debt burden. It is recommended to create a clear summary or table to keep track of your debts and make it easier to allocate your resources. Here's an example:
You have two credit card debts: Sofa and TV
The remaining balance for the Sofa debt is 15,000 baht, with a monthly payment of 2,500 baht. The due date for payment is the 5th of every month, and there are 6 installments remaining. The annual interest rate is 20%.
The remaining balance for the TV debt is 50,000 baht, with a monthly payment of 5,000 baht. The due date for payment is the 1st of every month, and there are 10 installments remaining. The annual interest rate is 15%.
Therefore, the total debt amount is 65,000 baht, and the combined monthly payment is 7,500 baht.
By summarizing your debts, you can have a clear overview of how many debts you have to pay each month and the total amount you need to allocate. This not only helps you visualize your debt situation but also enables you to plan which debt to prioritize in order to reduce your monthly debt burden or lower the interest payments throughout the contract period.
- Pay more than the minimum
As it is well known, credit card interest rates are typically high and calculated on a monthly basis. Paying only the minimum amount will not effectively help in paying off the entire credit card debt. Therefore, it is important to pay more than the minimum. This will prevent the interest from accumulating further. You can calculate the credit card interest using the following formula:
Total outstanding principal x interest rate x number of days ÷ 365 days
- The Snowball Effect
Another method to pay off debt is by starting with the smallest debt first and using the money saved from paying off the smaller debt to tackle larger debts. It's comparable to gradually molding a snowball from a small size to a larger one. The process continues in sequence until eventually clearing all debts. However, it is crucial to make payments in full and on time, avoiding any additional late fees or charges. Additionally, it's important to make at least the minimum payment on each credit card, except for the smallest debt, which should be paid off as much as possible in order to eliminate it quickly.
Using a credit card for smart, worthwhile purchases
Once you've learned how to use credit cards wisely, obtained a mortgage for a home, and mastered the art of paying off credit card debt, we now have some tips for smart credit card usage when it comes to making purchases. Credit cards are like financial tools that can enhance our financial lives, but it's important to remember that spending behavior reflects on our credit bureau. Therefore, using credit cards smartly and wisely will contribute to making future home purchases easier.
- Using a credit card after the account statement is issued
The statement date and the due date for credit card payments may vary for each individual. The statement date reflects the interest charges incurred on the previous month's balance, while the due date is typically around 10-15 days after the statement date (depending on the specific terms of each bank). If you start using a credit card after the statement date, you will have nearly 20 days or more to maximize the benefits. However, it is important to check the terms and conditions of each card type and each bank, as they may have different conditions regarding statement and due dates.
- Use your credit card instead of cash to earn rewards points
The benefits of accumulating reward points are greater than you might think. In addition to being able to redeem them for cash, the value of exchanging them for other goods and services is even more rewarding. For example, you can exchange them for airline miles to travel abroad, redeem for discounts, or enjoy a wide range of premium products and services.
- Using accumulated points as a minimum purchase requirement
When shopping at the department store, if you use points equivalent to the full price, you can redeem them for cash discounts. For example, if you purchase items worth 3,000 Baht and use 3,000 points, you will receive an additional discount of 10% or a cash discount. This benefit is a reason why using a credit card instead of cash is preferable, as every expenditure allows you to earn money back.
- Check your Cashback Balance
The main strategy of credit cards this year is to receive Cashback rewards. Especially for electronic products, there are specific Cashback offers that indicate the percentage and amount of Cashback you can receive. With good financial planning, you can earn Cashback rewards of thousands of Baht per month.
- Regularly check your benefits
Every credit card offers continuous benefits, and the majority of them include discounts at various restaurants and stores. For example, you may receive a free bottle of water when purchasing food, or if you buy 3 shirts, you get an additional one for free. Some cards offer buy-one-get-one-free deals, or even free movie tickets every month. If you have multiple cards, it is recommended to download a mobile application that helps manage them conveniently, ensuring that you don't get confused and receive notifications whenever there are additional benefits available (the application must be provided by the respective banks).
Conclusion
In conclusion, utilizing your credit card as a tool to secure a home loan not only opens doors to homeownership but also unlocks a world of financial advantages. By strategically managing your credit card and accumulating points, cashback, and other benefits, you can maximize your purchasing power and make your dream home a reality. So, take the leap, explore the possibilities, and embark on the exciting journey of applying for a home loan with the help of your trusted credit card. Your dream home awaits, and with the right financial strategy, it's within your reach.
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