Purchasing a home is usually the largest financial decision of one’s lifetime. It’s complicated, time-consuming and requires a substantial financial outlay. Of course, an essential part of the homebuying process is obtaining a mortgage. Indeed, much of the decision-making surrounding which home to make an offer on revolves around the monthly payment: how much will it be and can I afford it? This is usually the most burning question future homeowners ask themselves. However, the mortgage payment is tied to a rate, which is connected to the borrower’s credit score. Let’s look at why it’s important to have the strongest possible credit when purchasing a home. Why is it important to have good credit when purchasing a home?Simply put, those with good credit have more options when purchasing a home. A stronger credit history reassures lenders of the borrower’s ability to pay and as such, the lender rewards the borrower with the lowest rates and the most attractive terms. A lower mortgage rate means a lower monthly payment than borrowers with weaker credit would pay. (Of course, the monthly payment also includes taxes, insurance, HOA fees and other costs.) More housing options could mean a larger home, a home in a different neighborhood, or a home with amenities not considered initially at the onset of the homebuying process. Learning how to check your credit scores to understand a more in-depth picture of your financial obligations is an essential step to improving credit and obtaining the best mortgage rate possible. How does your credit affect your buying power when purchasing a home?To illustrate the buying power of good credit, let’s see how a 100-point difference in credit scores affects one borrower’s mortgage payment. A borrower puts 20% down on a $300,000 home and applies for a 30-year fixed-rate loan of $240,000. With a strong credit score of 780, the borrower might obtain a 4% interest rate (this is an example, rates vary based on the current market). The monthly payment would amount to about $1,164 a month, not including taxes, insurance or homeowners association fees. If this same borrower’s score dropped by about 100 points to between 680-699, the mortgage rate might increase to about 4.5%. At that interest rate, the monthly payment would increase to $1,216, an extra $62 a month, or $744 per year. While this might not seem significant at first, added up over the years, it amounts to a lot. In this example, a 100-point-drop has the borrower paying an additional $25,300 over 30 years. This amount of savings could be spent making improvements to the home, such as renovating the kitchen, increasing the home’s value over the long run. As such, credit monitoring for a home loan is imperative to ensure that you have the highest possible score when you are ready to begin shopping for a mortgage. How does good credit help buy a house?Besides obtaining the most favorable rates from lenders, good credit can also save borrowers valuable time in the homebuying process. Instead of haggling with different lenders, or undergoing delays because your loan representative needs to “speak to their manager,” the process is more streamlined because your good credit quickly gets you the best possible rate. Additionally, if you’re looking to purchase in a hot market, where prices keep increasing, perhaps even by the day, having a strong pre qualification letter with strong credit will help make your offer more competitive. Not only will you reduce your risk of losing out on a hot property, but you’ll save money by not having to pay more interest. How can I raise my credit score?Because each credit agency calculates its own credit score using its own models, differences between reports can produce vastly different credit scores. Most borrowers seek the highest score possible, of course, and one that is consistent. The ability to view, understand and manage your credit is key to putting yourself in the strongest position when applying for a mortgage. Borrowers should consider utilizing a credit monitoring company that tracks movement in scores and provides helpful suggestions for actions to increase your score. Such a tool can help individuals understand the dynamics of credit and the impact of open and closed credit accounts on their overall score. The post How Credit Monitoring Services Can Help When Purchasing a Home appeared first on SmartCredit Blog. from https://blog.smartcredit.com/2021/04/30/credi-monitoring-for-home-loan/
0 Comments
While education might be priceless, it isn’t free. According to data reported to U.S. News, the average college tuition for the 2019-2020 school year ranged from $41,426 (for private colleges) to $11,260 (for state colleges). These figures do not include room and board, in addition to other expenses, such as books, computers and travel, which can significantly increase the total amount needed to attend college. Few parents have an extra $40,000+ on hand, so how can families today start saving for their children’s college fund? Or, if they’ve already begun saving, what additional strategies can they put in place to make that fund grow even faster? 529 PlansNamed after the section of the Internal Revenue Code that governs it, a 529 plan, also known as a “qualified tuition plan,” offers families a tax-advantaged way to save for education costs. There are two types of 529 plans: educational savings plans and prepaid tuition plans. Educational savings plans, which are sponsored by states, allow families to open an investment account on behalf of their child, who can then use the money for not only tuition and fees but also room and board and other qualifying higher-education expenses at any college or university recognized by the Department of Education. While the money can usually only be invested in mutual funds and exchange-traded funds, the underlying benefit is the tax savings, which vary according to state and plan. Generally, families contribute after-tax money to the 529 plan and the earnings grow tax-free. A great benefit of a 529 plan is that families are not limited to their state’s plan — they can contribute to a 529 plan in any state that offers one. Further, a 529 plan can be used for schooling in another state. For example, if you live in Florida, you can contribute to a Texas 529 plan and use the funds for a college in California. Families can do their research to find the best plan that works for them, including the particular tax advantages. The other type of 529 plan, the prepaid tuition plan, as its name implies, is simply a way to prepay tuition and fees at a college at current prices. This locks prices in early, potentially saving families thousands of dollars. Usually offered by public institutions, the downside of this strategy, however, is the unknown — whether or not the child will want to attend the chosen university and has the academic achievements to be accepted. Coverdell Education Savings AccountAnother investment vehicle for college savings is a Coverdell Education Savings Account (ESA), which allows families to set up a savings account for someone under the age of 18 to pay for qualified education expenses. The advantage of the Coverdell ESA is the breadth of asset classes available to the account holder. In a 529 plan, funds can generally only be invested in mutual funds and exchange-traded funds. However, in the Coverdell ESA, the investor can select stocks, bonds and a variety of different asset classes. While both college savings plan types allow assets to grow tax-free, contributions to a Coverdell ESA are not tax-deductible. Further, it’s important to note that the Coverdell ESA plan is only available to people who make less than an adjusted annual gross income of $110,000 for an individual, or $220,000 for a married couple filing jointly. Also, the annual contribution limits to a Coverdell ESA are low: only $2,000 per year per beneficiary. Traditional or Roth IRAFamilies often tap existing investment and retirement accounts to pay for their child’s education. Traditional and Roth IRAs are no exception, and can be used to fund college tuition and expenses. Investors contribute after-tax dollars with a Roth IRA, but do not pay taxes on the money when they withdraw it. If you’re over age 59½, you can withdraw money for any reason, including funding your child’s college expenses. There are usually penalties for withdrawing funds before age 59 and a half, but if you’ve had and contributed to the account for at least five years, you can still take out earnings to pay for qualified higher education expenses without paying the 10% penalty. Like the Roth IRA, the traditional IRA also waives the 10% penalty for withdrawals used for qualified higher education expenses before age 59 and a half, but you do have to pay income tax on the withdrawals. It’s also important to understand the contribution limits for both types of IRA accounts: for 2021, if you’re under age 50, it’s $6,000 per year and if you’re age 50 or older, it’s $7,000 per year, which includes a $1,000 catch-up contribution. UGMA and UTMA AccountsAs another investment vehicle for college savings, families can open a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account on behalf of a beneficiary under 18. Though not specifically created as a college savings account, the assets in these accounts will transfer to the minor when he or she becomes an adult (at age 18 or 21, depending on the state). The benefit of this account type is flexibility: there are no contribution or asset class limits, and the child may use the funds not necessarily on qualified education expenses at a traditional college or university. A downside is that there are no guaranteed tax benefits. Final considerationsWhile it’s never too late to start saving money for a child’s education, the earlier a family starts, the more of a chance the money has to grow. It’s also important to know that different types of accounts vary with respect to contribution limits, tax advantages, withdrawal penalties and permissible asset classes. You want the funds to grow, but there might be upside limits and downside risks. Also, if you do apply for financial aid, keep in mind that the funds in these accounts will be counted as assets, and may affect eligibility. Before you launch a college savings plan for your kids, it’s important to have other financial ducks in a row. For one, you should pay off high credit card balances or other high-interest debt, and ensure that your credit scores are at the highest level possible. This is for planning purposes, in the event that your child needs to apply for student loans and needs you to co-sign. You would not want poor or even fair credit to have an impact on a lending decision. References: https://www.fool.com/retirement/2018/06/18/3-smart-ways-to-save-for-your-childrens-college-co.aspx https://www.sofi.com/learn/content/how-to-save-for-childs-college-tuition/ The post Savings for College: 4 Strategies to Consider appeared first on SmartCredit Blog. from https://blog.smartcredit.com/2021/04/27/saving-for-college/ Opening up a kids savings account for your children and teaching them how to budget can help ensure success for your children’s financial future and hopefully stability for your own retirement as well. Most parents would say that they’d want their children to have a better life than they did. And whether or not you grew up in a financially stable home or an unstable one, there’s no reason to not give your kids the tools, resources and knowledge to ensure they’re prepared to make good financial decisions for their own future. Open a Kids Savings AccountThe first step in helping your kids learn to budget is to open a kids savings account. Keep in mind that this does not have to be a bank account that only you put money into (a custodial or joint account); they can add funds to it themselves as well as they earn money from chores or receive gifts from family members. Best of all, you can open the savings account at any age. For instance, let’s say that you give your children money on their birthday or as an allowance. Even from a young age, you can teach them to put a certain percentage of their earnings into their savings account. Once they get older and start working — whether it’s getting money from doing chores or a job outside the home — encourage them to continue to put money into their savings. If you have the means to do so, you can also add incentive by agreeing to add to match some of their deposits. Though some parents may use this savings account to help with their child’s education expenses, you can also simply use it to teach them the benefits of a savings account for their own gratification. For example, if your child wants to purchase something for themselves, remind them that they need to put the money into their savings account to help save up for it. Add your kids as an authorized user on a credit card In addition to opening a kids savings account for your child, you can also, when they get a little older, add them as an authorized user on your credit card. This is a great way to start helping them build credit while teaching them the discipline that must come with paying off bills on time and before interest accrues. Of course, you using the credit card and paying off your bills on time will then also help start building credit early, setting them up for a strong financial future. It’s all the more reason to ensure your credit score is strong before you attach your child to it. (Learn how SmartCredit can help you create a plan for achieving your best possible score.) Involve Your Children in (Some) FinancesThe best way to teach budgeting for kids is to involve them in your own household financial planning in a way that’s appropriate for their age. While they don’t need to know every detail, you can sit down as a family once a month and create a list of necessary expenses and bills that need to be paid, based on what your child can understand. For example, if you know the groceries will cost $100 a week, then explain to your child that you’ll put aside $100. Then, when you take them to the grocery store, let them help you shop so that they can learn how you manage to stay within that budget. Not only is this a great way to directly teach your child budgeting, it also helps to sharpen their math skills. Help Children Create Their Own BudgetYour children having some involvement in household finances is great for budgeting, but more importantly, your child needs to know how to manage their own budget. This starts with organization.
Learn About Financial Literacy TogetherWhile some parents might think they know everything there is to know about financial literacy, let’s admit that there is always more to learn or things that we wish we had done better or sooner. Though you can share a bulk of what you’ve learned with your children, it definitely doesn’t hurt to learn about financial literacy together. Visit the library A trip to the library or bookstore is a great way to not only bond with your children, but to make the experience of learning about financial literacy fun. Libraries also sometimes have education programs that could be meaningful, too. Share and download budgeting apps There are countless budgeting apps out there. Share these apps with each other, and utilize their budgeting tools and data to help aid in your planning. You never know what you can learn from these apps and from each other! Watch YouTube videos Screen time might not be great for kids in excess, but watching some videos in moderation can be beneficial. YouTube has plenty of channels about personal finance, like Make It by CNBC, which offers a glimpse into millennial finances. Don’t Be Afraid to Say “No”One of the best things you can do as a parent to teach budgeting for kids is to be confident saying “no” to your children. Many children — especially those who go to school or have ever seen an advertisement — will likely ask their parents at some point to buy them something, whether it be a toy, a snack or an electronic device. Teach needs vs. wants Though it’s not that easy to say “no” to your child (and, of course, it’s OK to provide them with “wants” every once in a while), getting in the habit of teaching them they can’t always have what they want will help your children ultimately make better buying decisions for themselves. Whenever you talk about money or making a purchase, ask your child if it’s a need or a want. A simple trip to the grocery store can teach this, and explaining to them that you sometimes purchase “wants” in addition to “needs” can be turned into a different lesson; for example, how much should you spend on “wants”? References: https://www.bankofamerica.com/deposits/savings/child-savings-accounts/ https://www.youtube.com/channel/UCH5_L3ytGbBziX0CLuYdQ1Q The post Budgeting for Kids: Do They Need a Savings Account? appeared first on SmartCredit Blog. from https://blog.smartcredit.com/2021/04/24/budgeting-for-kids/ The vast majority of home buyers purchase their dream home with financing, and that means applying for a mortgage. Don’t believe everything you’ve been warned about, however. The loan application process is more user-friendly, automated and transparent than many property novices are aware. Here are the key steps to address, and tips for getting ahead of the paperwork. Is Pre-Qualification Essential?Beware of the distinction between pre-qualification for a loan and pre-approval. They are not the same, and you may decide to skip pre-qualification altogether. Pre-qualification is simply a perfunctory, non-binding review of your financials by a financial advisor or lender. It’s informal and not based on any third-party credit reports, so it carries little weight with sellers. It may be useful, however, if you are coming to the mortgage approval process with no knowledge whatsoever of your eligibility and want to confirm that you’re at least in the right ballpark before proceeding. Pre-Approval Establishes Your BudgetPre-approval, on the other hand, involves a more robust process for establishing your mortgage eligibility. In this case, the lender will formally examine your financials to see if you meet the lending criteria. You’ll receive a clear picture of how much you can borrow, thus what price range you can search within. During the pre-approval process, the lender will look at the following: Pre-approval benchmarks
The lender will also establish your Debt-to-Income Ratio, calculated according to your income in relation to your expenses and existing debt burden. It’s a myth that you can’t get a mortgage if you’re already carrying debt. Many homebuyers, particularly millennials, have years of student loan debt to repay. As long as your debts do not exceed 36% of your income (the maximum ceiling is 43%), you should be within the acceptable range for a mortgage. (Pull your credit report with SmartCredit, and take advantage of easy Action buttons that let you ask questions, resolve errors and make a plan to achieve your best score). Once pre-approval is complete, the mortgage lender will establish the loan amount you can qualify for. Realistically, you should have your pre-approval in place and ready to go before you start approaching sellers. Begin House HuntingLet the fun begin. With your pre-approval locked in, start searching properties listed within your price range. Bear in mind, however, that many online listings show prices that differ from the seller’s actual asking price. Now is the time to engage the services of a realtor. Not only can they offer a powerful negotiating resource, but they can also mine their network and local knowledge for listings that may not even be on the open market. Found It? Make an OfferMaking a formal offer to the seller is a great landmark to reach, but there’s still a ways to go. Any sale will be based on so-called contingencies, which are the conditions that must be fulfilled in order to complete the transaction. These involve appraisal by the mortgage lender, home inspection and mortgage approval for the buyer. This is also the moment to make your down payment, which will be placed in escrow. You might have heard that a 20% downpayment is the minimum, but that is not always true. With an FHA loan, for example, you can put down as little as 3.5%. Applying for a MortgageThe paperwork now begins in earnest. You’ll have assembled many of the documents required at pre-approval, but otherwise this is the moment to collect a stack of personal, professional and property records to apply for a mortgage. You’ll need the following: Mortgage application dossier
While you’re busying yourself with these, your realtor will be assembling the property file for full details on the property size, taxes, HOA fees and so on. These are usually available in court and public records. Once all documents are submitted to the lender, you must receive a Loan Estimate within three days. This will detail the terms of the loan, including interest rate, closing costs, monthly payments and any penalties that apply for early repayment. For your part, you then have ten days in which to issue an Intent to Proceed (agree) or reject the offer and keep searching. Loan Processing and UnderwritingThe documents you and your realtor have submitted to the lender now pass onto the verification stage. There is not much for you to do other than wait while your lender confirms your credit report, title report and mortgage appraisal. In some cases, the appraisal amount (the mortgage lender’s valuation of the property) is less than the seller’s asking price. If this happens, you can pay the difference, renegotiate with the seller or walk away from the deal. The final step is for all documents to pass to the Underwriter. This figure is the gatekeeper for the loan approval. Based on their assessment of the loan estimate, borrower file and property file, they will approve or reject the mortgage application. If there are any red flags in your credit report or borrower file, such as delinquent payments or insufficient proof of income/assets, they may request a written explanation or further proof. Try to anticipate these from the outset so that you have the documents ready. Closing TimeAssuming the Underwriter has approved the mortgage application, your file will be sent to the appointed attorney, who will, in turn, summon you to a closing ceremony of sorts. This requires your signature (and thorough review) of a substantial pile of documents, as well as payment of the closing costs, which cover settlement fees and any prepayments for homeowners insurance, mortgage insurance or taxes. Although closing costs can be included in the overall loan, this may not always be the case, so budget for up to 5% of the property purchase price. With the deal inked and the property title transferred, you will emerge from closing with a Promissory Note (your IOU to the mortgage lender), Closing Disclosure and the Deed of Trust. And of course, you will be the owner of a new property. References: https://www.bankofamerica.com/mortgage/learn/guide-to-the-mortgage-loan-process/ The post How Does the Mortgage Process Work? appeared first on SmartCredit Blog. from https://blog.smartcredit.com/2021/04/21/how-does-the-mortgage-process-work/ With mortgage rates hovering at record lows, many homeowners find themselves asking the question: should I refinance my home? There are indeed several factors to consider and of course, no two situations are alike. You can perform this analysis yourself, or work with your personal banker or mortgage consultant to decide what works best for you. Reasons to RefinanceRefinancing a mortgage means replacing — really, paying off — an existing loan with a new one. Let’s have a look at a few reasons why it makes sense to refinance a home. To secure a lower interest rate This is clearly the best reason to refinance: lower interest rates generally mean lower monthly payments, and who wouldn’t welcome that? Refinancing is usually a good idea if you can reduce your interest rate by at least 2%. However, many lenders say a reduction of even 1% can lead to savings that would justify a refinance. Besides lower monthly payments, the other hidden benefit of a refi is the ability of the homeowner to increase the rate at which they build equity in their home. For example, a 30-year fixed-rate mortgage with an interest rate of 5.5% on a $200,000 home has a principal and interest payment of $1,136. That same loan at 2.8% reduces the monthly payment dramatically to $822 — paying less in interest and more of the principal. To shorten the loan’s term Another reason to refinance is to shorten the term of the loan. This helps build equity faster, with or without a dramatic increase in the monthly payment. Using the previous example of the $200,000 home, converting the 30-year fixed-rate mortgage with an interest rate of 5.5% to a 15-year fixed-rate mortgage with an interest rate of 2.4% increases the monthly payments from $1,136 to $1,324, a difference of $188. A monthly increase such as this can be seen by some homeowners as a cost-effective way of paying off their homes much faster than they could have with a higher rate. To convert between ARM to fixed-rate, or vice-versa Many homeowners start off with an adjustable-rate mortgage (ARM) because they often start out offering lower rates — and lower payments — than fixed-rate mortgages. However, periodic adjustments can result in rate increases that are higher than the rate available through a fixed-rate mortgage. As such, homeowners can benefit from converting an ARM to one that is fixed-rate, in order to take advantage of lower interest rates and prevent surprises along the way. On the flip side, when interest rates are falling, those in a fixed-term mortgage can benefit by converting their mortgage to an ARM. This works best for homeowners who do not plan to stay in their homes for more than a few years. To access equity or refinance debt Many homeowners refinance their mortgages because the money they save each month can be used to cover other major expenses, such as remodeling or renovation. This is usually justified because remodeling adds incremental value to the home. Further, the cost of capital — the lower interest rate — would be less than that of another source they’d need to tap for financing. Reasons Not to RefinanceWhile it might seem that there exists a sufficient number of reasons to refinance a mortgage in a low interest rate environment, there are a few considerations homeowners need to take before speeding ahead with a refi. Let’s have a look at a few of these. Closing costs A mortgage refinancing is not without its costs. As with the initial mortgage, refinancing requires that the homeowner pay closing costs that cover the charges for title insurance, attorney’s fees, an appraisal, taxes and transfer fees, among others. These refinancing costs, which can be between 3% and 6% of the loan’s principal, can be the same or even higher than those paid for the initial mortgage. They might even take years to recoup. As such, these “hidden” costs need to be considered and factored into the new monthly payment. Indeed, the new payment may not necessarily be more attractive. How long you plan to stay in your home Related to closing costs, if you do not plan on staying in your home for more than a few more years, then a refi might not make sense. Homeowners need to figure out the optimal “break-even” point when closing costs will be paid off and they can enjoy the monthly savings from a reduced monthly payment. Poor credit It’s important to note that just because there might be historically low interest rates available, a new mortgage is not guaranteed at that low rate for every homeowner who applies for a refi. In fact, those with below-average or poor credit may not be able to take advantage of new, lower rates, and will not be able to enjoy a dramatic decrease in monthly mortgage payments. If this is the case, it makes sense for homeowners in this situation to pay down debt, including making extra mortgage payments, in order to improve a credit score before considering refinancing their mortgage. Learn more about how SmartCredit can help you achieve your best score and set yourself up for more financial success. References: https://www.investopedia.com/mortgage/refinance/when-and-when-not-to-refinance-mortgage/ https://www.investopedia.com/ask/answers/09/refinancing-mortgage.asp https://www.cnn.com/2020/12/03/success/mortgage-rates-record-low-freddie-mac/index.html https://www.wellsfargo.com/mortgage/rates/ https://lcef.org/calculators/MortgageApr.html The post When and Why It Makes Sense to Refinance Your Home appeared first on SmartCredit Blog. from https://blog.smartcredit.com/2021/04/16/when-it-makes-sense-to-refinance-a-mortgage/ Most people know that opening a new credit card account or applying for a mortgage affects their credit score. But did you know that, while it’s rare and situational, opening and closing other accounts — like checking and savings accounts — can also impact your credit score? Once you know how different types of accounts affect your credit score, you can take smart steps to properly open and close accounts for the best possible impact on your credit score. A little knowledge can help you take charge of your credit and lead you down a path toward financial well-being. Checking Accounts and Credit ScoresWhen you go to open a new checking or savings account, your financial institution may look at your credit report, but typically it makes only a soft inquiry, and the effect on your credit score is nil. Other times, but not as often, your bank may make a hard inquiry, which can negatively affect your score, but usually not by more than five points. While most people need a checking account to manage their everyday financial affairs, it has little to do with their credit score. Routine actions such as making deposits, writing checks, withdrawing funds and transferring money do not get reported to the credit bureaus, nor do they affect your credit score. Even overdrafts don’t impact your score, provided you pay the overdraft fees and take care of any negative balance before the bank takes action. Closing a checking or savings account doesn’t affect your score either, as long as you don’t have any outstanding issues. It can only hurt your score if you close the account with overdrafts or negative balances, so you should bring your checking and savings accounts into good standing first before closing them. Credit scores are mainly based on borrowing activity, serious delinquencies and public records. So, in most cases, you can confidently open and close bank accounts without fear of doing damage to your credit score. Credit Cards and Your ScoreYou can safely open one or two credit accounts without hurting your credit score, as long as you use them responsibly. When you first open a new credit card account, your credit score can take a 1% to 2% hit. Even though the credit inquiry that gets generated when you apply for a new credit card account will stay on your credit report for two years, most credit scoring models will factor it into your score for roughly only the first three to six months. Assuming you continue to use your credit card accounts as per usual, you can expect to see your score return to where it was relatively quickly. It makes good fiscal sense to monitor the movement of your credit score up and down the entire time with easy-to-use tools on your smartphone or computer. A large portion of your credit score is based on your debt-to-credit ratio, or how much total debt you have compared with how much total credit you have available. Ideally this is 30% or less; lower is better. When you open a new credit card or two, your total credit increases, and if you don’t start charging a lot on your new credit cards, your total debt stays the same, so your debt-to-credit ratio decreases, which in turn helps boost your credit score. Closing a Credit Account Canceling or closing credit card accounts can be a little trickier. You should know the potential consequences first before deciding to close an account. For example, consider how long you’ve held a card. The length of your credit history is a factor in calculating your credit score, so if you hold only a few cards and get rid of your oldest one, your credit score could be reduced as a result. You shouldn’t close an account to try to erase negative information related to that account. Closing a credit card account that you’ve missed payments on won’t improve your score. Your history with that card stays on your credit report for years, even after it’s canceled. Finally closing your credit card could increase your debt-to-credit ratio by reducing your available credit portion of the calculation. So you’ll want to think about how many other cards you have, your total debt, and total available credit left on the remaining cards before closing accounts. Mortgages: More Help Than HindranceWhen you first take out a mortgage, your credit score may dip temporarily until you prove you can make the payments. This can take about six months. Make on-time mortgage and other bill payments every month to bring your score back up. You may not want to apply for any other credit during this time. Knowing the ideal time to apply for any additional loans and how that can affect your credit score is possible with SmartCredit’s suite of tools that that teach you all about your score before you apply. It shows you how your score moves when you pay or you spend, and how to add points to your credit score faster. When it comes to paying off your mortgage, it won’t affect your credit score much. The action will stay on your credit report for about 10 years as a closed account in good standing. In that period of time you likely will have continued to help your credit score by making other on-time payments on car loans and other loans, so the effect of paying off the mortgage should not negatively influence your score. Be a Credit Score WarriorYou don’t have to idly sit by, watching your credit score tick up and down. And you don’t need to enlist the help of a professional advisor to act on your credit score. Instead you can be proactive and take charge yourself. There are several resources out there to help you keep an eye on things. For example, SmartCredit’s ScoreTracker, ScoreBuilder* and ScoreMaster tools can help you learn all about your credit score and create a plan to resolve any inaccuracies. Becoming your own credit score warrior is an advantage when it comes to improving your overall financial well-being. *This feature unlocks if you have negative credit data. References: https://www.cnbc.com/select/how-bank-accounts-impact-credit/ https://www.investopedia.com/ask/answers/040715/how-does-your-checking-account-affect-your-credit-score.asp https://www.investopedia.com/articles/personal-finance/031215/how-mortgages-affect-credit-scores.asp https://www.thebalance.com/does-closing-a-bank-account-affect-credit-score-4159898 https://www.thebalance.com/credit-cards-you-should-never-close-960970 https://www.discover.com/credit-cards/resources/opening-a-credit-card/ The post How Different Types of Bank Accounts Affects Your Credit Score appeared first on SmartCredit Blog. from https://blog.smartcredit.com/2021/04/13/does-closing-a-checking-account-affect-credit-score/ While they both hold financial assets, a brokerage account and an IRA (Individual Retirement Account) are two different types of accounts. The main difference between the two is that an IRA is an account used for the purpose of accumulating assets for use in retirement. Several tax advantages exist for the IRA that do not for a traditional brokerage account. Let’s look at these two different account types in further detail, so you can decide what’s best for you. The Pros of a Brokerage AccountBelow are the reasons and benefits of opening and maintaining a traditional brokerage account. No contribution limits There’s no threshold or limit associated with a brokerage account. The 2020 and 2021 IRA contribution limits are $6,000 for individuals under 50 and $7,000 for those 50 and older. Freedom to withdraw You can withdraw your money from a brokerage account at any time and for any reason. Trading on margin permitted You can trade on margin, or borrowed money, in a brokerage account. For more experienced investors, margin privileges are a welcome asset. Trading on margin is not allowed in an IRA because the IRS prohibits the use of IRA funds as collateral. Broader range of asset classes and investment vehicles There are some investment vehicles available in a traditional brokerage account that are generally not offered in an IRA. Options, for example, are usually not offered for IRAs. The Cons of a Brokerage AccountThe biggest disadvantage with a traditional brokerage account is that there are no special tax advantages that are available in an IRA. Regular brokerage account holders need to pay taxes on all earnings in the account, including both short and long-term capital gains and dividends. When an investment is sold at a profit, capital gains taxes must be paid. The IRS considers two types of capital gains — long-term and short-term. Long-term capital gains are defined as profits on investments held for over a year; short-term capital gains are profits on investments held for a year or less and are taxed as ordinary income. The Pros of an IRAAs mentioned earlier, the main difference between the two types of accounts — and the main reason incentivizing people to open an IRA — is the tax-advantage. The two main types of IRAs are Traditional and Roth; the differences between the two lie in how the accounts are taxed. Traditional IRAs are tax-deferred investment accounts. For those who qualify, traditional IRA contributions are tax-deductible in the year they are made. Further, investments in the account grow on a tax-deferred basis: investors need not worry about paying capital gains or dividend taxes on the investments in the IRA. Roth IRAs are after-tax accounts. There is no annual tax deduction allowed for Roth IRA contributions; however, as with the Traditional IRA, investments grow without capital gains or dividend taxes, and any qualified Roth IRA withdrawals are 100% tax-free.
|
About UsWe are a group of fun and creative people building unique and patented technologies for the consumer money, credit & identity space. We started in 2003 with the idea that technology should allow consumers to interact with their banks, creditors and other institutions using a simple button. So, we noodled a lot and built the SmartCredit.com® system to make better users of money & credit. Archives
October 2020
Categories |