If you need a new line of credit in order to make a major purchase or start a new business, now is a good time to borrow. Interest rates remain low, and lenders seem more willing to lend.
Before you apply for that loan, though, make certain you receive the best possible terms. Check your credit report so you know what information lenders will see, correct any errors, and do everything possible to improve your credit score before approaching a lender.
Remember that you are entitled to one free copy of your credit report from each of the nationwide credit reporting agencies each year through www.annualcreditreport.com. Here are five credit moves you may want to consider while interest rates are still hovering near rock-bottom lows:
1. Consider buying a home. While low interest rates are not reason enough to take the plunge into homeownership, now may be the right time if you are already thinking about buying. Home prices have appreciated nicely in many markets, but there are still good values available in many parts of the nation, and rates on long-term, fixed-rate mortgages are at their lowest in decades.
Not sure how much house you can afford? Current FHA guidelines recommend that no more than 43 percent of your gross income be used for housing, debt, and other financial obligations.
2. Already own a home? Consider refinancing. If you are in an adjustable rate mortgage (ARM) and plan to stay in your home, today’s low interest rates make now a great time to refinance into a fixed-rate loan.
It may also be a good time to refinance your long-term, fixed-rate mortgage. If you purchased a $225,000 home five years ago and had a rate of 7 percent, your payment is about $1,500 per month and you have already paid approximately $76,000 in interest.
Refinancing the balance of that loan now at 3.5 percent for 15 years will save you almost $175,000 over the life of the loan and will let you pay off your home almost 10 years sooner. In addition, your payments will only go up about $25 per month.
3. Consider buying a car. Many manufacturers are offering special financing options and other incentives to encourage prospective car buyers to take the plunge. Do your homework—know what you want to buy, and compare offers to ensure that you are getting the best deal.
4. Pay off debt. No matter what the economic environment, it’s always a good time to reduce your credit card debt. It may also be a good time to negotiate rates with your creditors, especially if you have maintained an on-time payment record and have continued to make at least minimum payments.
5. Review your investment options. Talk with your financial advisor about alternatives to savings and money market accounts. While the stock market is at an all-time high, a financial advisor can help you understand how to invest so that your portfolio has a balance of stocks, bonds, and cash that will perform well over the long term.
Mechel Glass is the Vice President of Education for ClearPoint Credit Counseling Solutions. She is responsible for developing the curriculum and financial education materials for online classes including webinars, podcasts, videos, and listen-on-demand classes. She provides support and training for the agency’s community outreach programs and staff, including financial education specialists in 15 states. Glass also manages the development and reporting of the agency’s online education, and she is the co-author of The Veteran’s Money Book to be published by Career Press in April 2014.
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