This time of year (in normal times) is usually very full. Between holiday parties, shopping, visiting family, and traveling it can be a blur. A fun blur. It would be nice if some things could stand still while the blur happens, but who wants to think about finances, bills and saving money during this time of year? While it can be challenging to take the time and energy to get your finances in line, this year gives us all a unique opportunity to slow down and evaluate them.
Let’s start with a few tips to remember when shopping this season….
- Shop if it makes sense financially this year. I say this for two reasons. First, the economy is heavily dependent on consumer spending, especially at a time when many businesses are hurting. If we all shop less and spend less, the market may stutter, and we could face a longer economic recovery as many small businesses miss Christmas sales they need to stay afloat the rest of the year. Secondly, shop prices and don’t buy blindly. Plan purchases to find the most competitive price and have your preferred vendor match it. Supporting the economy doesn’t mean you shouldn’t still find the best deals!
- Watch out for counter discounts. Do not – unless you absolutely need to – accept an offer from a retail associate asking if you want to open an account to receive 10 percent, 20 percent or more off your purchase. The tradeoff, depending on the size of your purchase, likely isn’t worth it. From a credit score perspective, you’ll have a credit inquiry ran, a lower credit amount issued, and an interest rate north of 20 percent.
- Spread out your purchases over a few credit cards. Some people have plenty of credit available on a credit card (i.e., a $20,000 limit card that never has more than $1000 owed). For those that do not have individual card limits at this example or higher, you’ll want to make sure you’re not exceeding a billing cycle balance over 30 percent of the card’s limit. It’s easy to use credit cards and for charges to add up during this time of year. Even though you may plan on paying the full balance off once the statement is issued, the balance still cycles as normal and gets reported to the credit bureaus. Any credit balance exceeding 30 percent of the limit usually warrants a score reduction.
These tips will help you if you are in the middle of a mortgage loan process or about to start one. Lending companies pull credit at the onset of a loan application and periodically at the end of underwriting to make sure no new debt pops up during the process. Avoiding credit inquiries, opening new accounts, and monitoring balances will protect your scores and eliminate any underwriting ‘gotchas’.
Increased holiday spending (by use of credit cards, cash on hand, or taking from savings) can also affect you if you won’t be buying or refinancing until closer to spring. Higher credit card balances equal higher payments, and that can alter your debt-to-income ratios. Higher usage of cash on hand or a depletion of savings from the holidays can reduce your ability for a potential down payment when it comes time for you to act.
This time of year is the best, and while I’m not trying to be captain of the ‘no fun league’, I believe it’s important that we as consumers are aware of our situations and financial goals to start the year. Call myself or my team at Fountain Mortgage this holiday season for any questions related to your mortgage needs. If you’re about to start your home loan search, I’ll provide you a comprehensive analysis so you can have total confidence from start to finish. Happy holidays from the Fountain Mortgage family to yours!
This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.
Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268