The Top 4 Barriers to Homeownership

The Top 4 Barriers to Homeownership

As Financial Literacy Month is recognized throughout the nation, and the National Foundation for Credit Counseling® (NFCC®) are working together to spotlight the results of the 2019 Consumer Financial Literacy Survey. This year’s survey, conducted online by Harris Poll in March 2019 among 2,086 U.S. adults ages 18 and older, reveals prominent barriers to home ownership for Americans who have attempted to buy a home.

The survey reveals that many Americans face increasing barriers to homeownership despite the good news about the economy. In fact, one out of every two U.S. adults who have taken steps to purchase a home of their own say they have faced barriers.

Challenges have always existed along the road to homeownership, but it is clear that some obstacles can lead people to abandon the pursuit of their goal. Purchasing a home in today’s market requires a greater level of knowledge and preparedness than ever before. is a resource available to educate and prepare all individuals and families before they enter the homebuying process.

Top homeownership barriers reported in this year’s survey include:

Lack of Funding for Down Payment

A lack of funding for down payment or closing costs tops the list this year as the most common challenge. Savings has been a common challenge for some who have difficulty managing debt while balancing a household budget. Fortunately, most have non-retirement savings. More than half with non-retirement savings are keeping their funds in a standard savings account. Regardless of where someone may be in their journey to grow personal savings, nonprofit housing counselors can be assistive toward identifying ways to help make homeownership possible while growing personal savings.

Existing Debt

Three in five U.S. adults have had credit card debt in the past 12 months, and nearly two in five indicate their household carries such debt from month-to-month. Not surprisingly, more than half struggle to minimize their debt, primarily due to unexpected financial emergencies. Credit cards are known to be among the costliest forms of debt to manage and can be equally challenging to repay. Credit card interest rates for people with average credit scores are nearly 18% APR. Knowing credit cards are frequently used to cover emergency expenses in the absence of savings, makes it easy to understand how some may feel as though they are spinning their wheels trying to reduce the balances they owe.

Personalized credit counseling assistance can help people who want to take back control of their debt without turning to risky, get-out-of-debt-quick schemes.

Limited Budget Options

The survey revealed that about two in five U.S. adults, a proportion that has held roughly steady since 2007, say they have a budget and keep close track of how much they spend on such things as food, housing, and entertainment. On the one hand, it is encouraging to see that the number who regularly save has not diminished over time, but it is also disappointing that there continue to be more who do not follow these healthy financial habits. Nonprofit credit coaching is also a resource to help everyone succeed in reaching their savings goals, no matter their starting point.

Poor Credit History or Low Credit Score

A low credit score due to lack of credit history or an unsatisfactory record of debt repayment can be a major setback, especially when hoping to qualify for a mortgage. In either scenario, there are a range of options for restoring credit health while staying on track for home ownership. A credit report review or other credit coaching might be the best way to start when getting one’s credit ready for homeownership.

The survey clearly demonstrates the need for financial counseling and education for potential homeowners, but it also reveals the level of awareness of such resources. If they were to have financial problems related to debt, 23 percent of adults, or almost 56 million Americans[1], indicate they would reach out to a professional non-profit credit counseling agency for assistance. Taking that important step is as easy as reaching out to a counselor by calling 1-800-294-3896.

About the Survey

The 2019 Financial Literacy Survey was conducted online within the United States by The Harris Poll on behalf of the NFCC (National Foundation for Credit Counseling) between March 8th and March 13th, 2019 among 2,086 U.S. adults ages 18+. For complete research method, including weighting variables and subgroup sample sizes, please contact the NFCC at



[1] Calculation based on U.S. Census Bureau’s 2016 Current Population Survey (CPS), which estimates there are 244.81 million adults ages 18+ residing in the United States: 244.81M x 0.24 = 58.75M.


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APR on a Credit Card

APR on a Credit Card

Understanding interest rates on a credit card is harder than it seems. What is the real interest rate? How often is it applied, and what does it really cost? Credit cards are usually advertised by their APR (Annual Percentage Rate). What does that mean?

Interest is the cost of having access to credit—it’s the fee you pay for using the bank’s money instead of your own. The longer you go without repaying the balance owed, the more it will cost you in interest.

APR on a credit card refers to the yearly interest rate on a card. But it’s not quite that simple. Interest is typically calculated every day, and you are charged every month. The “annual” rate is not something you’d ever pay, because if you only made one payment per year, you’d be paying lots of late fees on top of the balance and interest (plus the debt would have defaulted after x-amount of days and probably have been transferred to a collection agency, severely impacting your credit score in the process).

Calculating interest from your APR

The average APR on a credit card in the US last year was 16.86% (according to the Federal Reserve). If you owed $1,000, what would that APR really cost you?

First you divide the annual rate by 365 to come up with a daily rate. So .1686 ÷ 365 = .0004619178. That is the percentage of interest you’d be charged each day.

Confused yet? You also have to remember that the balance is good throughout a monthly billing period. So on day 1 of the month you owe $1,000 on a card with 16.86% interest. Then you are charged approximately .46¢ in interest. ($1,000 x 0.0004619178% daily percentage rate).

Then the balance on the card for day 2 is $1,000.46, and the balance on day 3 would be $1,000.92, and so on. By the end of the month, you’d have a balance of $1,013.34. If your debt is compounded monthly, starting on day 1 of month 2, you’re charged .0004619178% of the new higher balance.

That’s assuming you didn’t use the card at all during the month. If you did, you might increase the interest charged every day, because many credit card companies base your interest on your average daily balance. So if you spent $30 on top of the $1,000 you started with, the average daily rate would be $1,001, and that’s what your daily periodic rate would be charged against.

Grace Periods

All of this complex calculation can be moot if you pay off the debt quickly. Credit cards may have a grace period, wherein you are charged no interest if you pay off the balance in full. Usually that can range from 21-30 days. If you use a card all month long and pay it off completely before the payment due date, there is no interest charged, and you’ve essentially gotten to use the credit for free.

This is a great way to use credit cards. You get the benefits of convenience, security, and the ability to use your credit card transaction history for budgeting purposes. You also earn potential credit card rewards, and have the positive credit history associated with using a credit card responsibly*. But if you pay off the charges before the grace period, you are charged nothing extra for all of these benefits. Go one day past the grace period, and then all of those interest charges kick in and you’re charged for the whole month, calculated against your average daily balance.

By paying off your credit card in a timely fashion, you are keeping your credit utilization rate lower, improving your score. You also avoid late fees and late payments, which would lower your score.


Back to the tricky math of credit card APRs. Creditors may compound interest daily or monthly, and this will change the calculation.

What this means is, are you paying interest on the extra debt you incurred yesterday through interest? Sometimes the “real” interest rate is calculated to include the compounding, and is called the effective annual rate, or EAR. Wikipedia has an example with a credit card with a 12.99% APR that becomes 13.87% when compounding is considered.

Fixed vs. Variable APRs

If the math isn’t confusing enough, some cards will have APRs that change every month. A fixed APR is going to stay the same, unless something major happens, like you ask for a reduced rate from the creditor, or a low introductory rate expires. A variable APR is often tied to the prime rate.

The Prime Rate, usually based on the federal funds rate set by the Federal Reserve, is currently 5.25%. So a credit card might have an interest rate of 10%+ prime, giving you a rate of 15.25%. If the prime rate goes up, so does your credit card rate.

For more about these rates and other kinds of interest, see our article and infographic “What Does That Interest Rate Really Mean?”

Different APRs for different balances

To add more complexity to all of this, you might have different APRs depending on what kind of balance you incurred. You might have a purchase APR that is charged on balances incurred through regular shopping, dining, travel, etc. This is usually the credit card APR you see advertised.

Then there will be a different APR for cash advances. This is usually much higher than the purchase APR, and there will be no grace period.

Then you might have a lower APR for balance transfers, to incentivize you to move balances from other cards to a different lender.

Penalty APRs might kick in if you miss payments, go over your credit limit, or make a credit card payment that is returned for some reason. This rate is much higher than your regular APR, and can reset a low introductory rate. You’ll need to make payments on time for six months in a row to get your rate reset back down to the regular APR.

All of this is pretty complicated, and every credit card agreement is different, so your real interest charges will depend a lot on the fine print of your agreement plus your borrowing and repayment behavior.

Key takeaways:

  • APR is a rough snapshot of the interest you would pay annually, but the real percentage is going to be higher due to compound interest charges.
  • Interest is charged monthly, not annually, and may be compounded daily or monthly.
  • Grace periods allow you to pay off credit cards and avoid interest charges altogether.
  • You’ll have a different APR for different kinds of balances, like cash advances, balance transfers, and purchases.
  • Interest rates might change under certain circumstances. Read the credit card agreements before applying for a card to know what might change your APR.

There is no need to carry a balance, your credit score will benefit from positive repayment habits. It’s a common credit card myth that many people believe it’s necessary to carry a balance over from one month to the next to help them build credit, that’s incorrect and could be costing you money. The best way to respond to a high APR is to pay off the card in full each month and reduce your borrowing. A certified financial coach can help you create a plan to pay off your debts and achieve financial freedom. Contact to get started.

If all the APRs you’re being offered seem sky high, talk to a credit coach about what you can do to improve your credit and qualify for better terms.


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This Financial Literacy Month, Brush Up With Some “Test Prep”

This Financial Literacy Month, Brush Up With Some “Test Prep”

Every April, we celebrate financial literacy month. It’s an important time for everyone to make sure they’re staying knowledgeable about financial topics and using that knowledge to better manage their money.

We want everyone to put aside some time to evaluate his/her own level of financial literacy and to try to learn something new.

The Council for Economic Education has an excellent Economic Literacy Quiz that we think would be a great exercise for Financial Literacy Month. Before you head over there to take the quiz, read on for some “test prep” to help you brush up on your financial literacy.

Here are some basic concepts that form a good foundation for improving economic and financial literacy:

  • Interest
    • Interest the amount of money a balance earns over time. It is calculated on a balance on some kind of compounding schedule. For example, if your interest compounds monthly, then the interest you have earned every month is added to the balance and you earn more over time. Debt you repay also carries an interest rate that costs you more over time as that interest compounds.
    • Read more about interest here
  • Supply and Demand
    • This is a central concept in economics. Supply is how much of a good or service available, and demand is how much of that good or service people want. If you have too much supply, prices go down. If you have too much demand, prices go up.
    • Read more about supply & demand here
  • Incentives
    • In economics, incentives matter. Lowering prices or subsidizing any activity will result in more of it. Raising prices or taxes on an activity will result in less of that activity. Entrepreneurs create businesses (and the jobs that come with them) because of the financial incentives at stake.
    • Read more about incentives here
  • Competition
    • When sellers in a market compete, consumers win. Each seller will offer better products, better service, and lower prices in an effort to win the consumers’ business.
    • Read more about economic competition here
  • Trade
    • When two people (or countries) trade with each other, both parties win. If you buy something from a store, you wanted the item more than the money you gave them, and they wanted the money more than the item. In this sense, trade is not a zero-sum game where there is a winner and a loser—both parties to a trade can benefit.
  • Investing
    • People use a stock market to buy and sell stocks, which are shares of ownership of businesses. The market brings willing buyers and sellers together so they can invest in businesses that they expect to grow or hold their value. When investing, diversification is important. That means spreading your money out over a number of different companies, rather than risking all of your money on one single investment vehicle.
    • Read more about investing here
  • Currency
    • Any kind of money that is acceptable as a medium of exchange is currency. Currency doesn’t hold its value very well, so it’s better to save money in an interest-bearing investment rather than just storing cash.
    • Read more about currency here
  • Inflation
    • Over time, prices of goods and services tend to go up. Typically, the “inflation rate” in the U.S. is 1-3%. That means money is worth less in real value over time. That also means anyone living off of savings or a fixed income suffers as their dollars are affected by inflation. People who borrow at a fixed interest rate, like most home owners, benefit as the real cost of their outstanding loans actually go down due to inflation.
    • Read more about inflation here
  • Insurance
    • Insurance is how people mitigate risk. You pay a premium to an insurance company, and if something bad happens, the insurance company pays you to compensate. The cost of insurance is based on how risky the insured person or property is. Therefore, it will cost more to insure property in a neighborhood with higher crime, or to provide health care to someone who is more likely to get sick.
    • Read more about insurance here
  • Banking
    • Different kinds of banks provide financial services and accounts to accountholders (or in the case of credit unions, their members). Consumers should evaluate banks based on their security (are they FDIC insured?), expenses (how much does it cost to maintain an account?), and convenience (do they have accessible locations and business hours?). One might also evaluate a bank based on its reputation for charitable giving, treatment of employees, etc.
    • Read more about banking here
  • Saving
    • Saving is critical to one’s financial well-being. It’s important to have an emergency fund saved in an easily accessed account, and long-term savings in some kind of account that earns interest. Most people save for retirement in long-term IRA (individual retirement accounts) or 401(k) accounts offered by their employers.
    • Read more about saving here
  • Taxes
    • This is an important subject for Financial Literacy Month, because tax time is in April. Taxes are collected from people when they conduct economic activity; income taxes are collected from your paycheck, sales taxes when you buy goods, etc. There are ways for people to reduce their taxable income, and if people overpay their taxes, they are entitled to a refund of the overage.
    • Read more about taxes here

There’s a lot more to know, but this should be a good quick overview. Head over to the Council for Economic Education’s economic literacy quiz and see how you do!

And be sure to set aside some time this year during financial literacy month to read up and learn a little more about your finances. Get started here on’s blog, and be sure to look through our archives for the latest articles about credit, debt, and personal finance.


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Don’t Let Student Loans Keep You From Purchasing A House

Don’t Let Student Loans Keep You From Purchasing A House

There’s a generation of people who may be avoiding or delaying homeownership because they’re already facing an overload of student loan debt.

Today’s recent college graduates carry more student loan debt than any generation before them. Even people who finished college a decade ago are still working to pay down what seems like an insurmountable debt load. This debt load can make buying a house seem like an impossibility.  However, considering that as a renter you are likely paying someone else’s mortgage, homeownership may be more attainable than you believe.

Good Debt vs. Bad Debt

We often talk about “good” debt. That seems counterintuitive, we know. What kind of debt could possibly be good? Well, it’s pretty simple; “good debt” is any debt that helps you build wealth.

That’s why so many people have borrowed thousands of dollars to go to college—statistically, having a college degree means one could earn nearly an extra million dollars over their lifetime (source).

Similarly, some people could justify borrowing money for a car, if that car is essential to getting them to work every day. If losing access to transportation would mean losing your job, then borrowing money to buy a reliable car might qualify as good debt.

The best kind of good debt is a mortgage. Borrowing money to buy a house gets you started toward a lifetime of building wealth and security. We urge everyone to make homeownership part of their financial plans both in the short and long term.  If for example you own your home when you retire and your loan is paid off, not having a rent or house payment will make living on a fixed income vastly easier.

Managing Student Loans & Mortgage

While getting into a mortgage is a positive thing, many people simply feel like they just can’t make it work especially when facing tens of thousands of dollars in student loan debt.

First, it’s important to ensure that your overall credit and credit scores are strong.  Make payments on time, keep balances as low as possible, and don’t do anything to shorten the length of your credit history (i.e., don’t close your old accounts, even when you pay them off).

Then, you have to figure out your debt-to-income ratio. Read up on The Basics of Debt-to-Income-Ratios, and do some math. If your student loans, coupled with a potential mortgage, would lead to a debt ratio that a mortgage lender wouldn’t approve, talk to a mortgage coach or a student loan counselor about what you can do to get your debt-to-income ratio under control.

Some things you might consider will include increasing your income, consolidating your federal student loans, reviewing the Department of Education’s (DOE) website for a number of federal loan repayment options, or working to eliminate your other debts, like credit cards.

Another step at this stage is first-time homebuyer education. This will help to ensure you are aware of special down payment assistance programs and take all the right steps throughout the homebuying process.

When you are ready, talk to a mortgage broker or lender about getting pre-qualified for a loan. Then you’ll know how much you can afford to buy before you start shopping for a home.

Saving up for a Down Payment

You don’t need a huge down payment to buy a house. Sure, it’s great to have 20% of the home’s price saved up before borrowing, but if your credit score is good enough, you can get an FHA (Federal Housing Administration) loan with as little as 3.5% down. Mathematically, you’re better off getting into a mortgage now and starting to earn equity than to wait until you’ve accumulated a full 20% down payment.

Even saving up 3.5% of a home’s purchase price can be a challenge, and it will be a good test of whether you are ready for homeownership. If you can keep making your student loan payments, pay your current rent, and save up 3.5% toward a mortgage, then you’re probably financially ready to tackle homeownership.

Start Small

It’s very important to bear in mind that your first home doesn’t have to be your dream home. You might sell your first home and move up to something bigger in 6-10 years. Don’t expect the first home you ever buy to have everything. After a few years of building equity, developing your career, and paying down student loans, you’ll be in a great position to make your second home one you’ll want to live in for decades.

Should I Wait?

Some people may advise you to put off buying a home until your student loans are completely repaid. We think it’s important to point out that approach has some disadvantages.

First, you lose the potential equity you would start building. As soon as you start making house payments, you start building wealth. And as property values rise, your home will be worth even more. It’s important not to think of homeownership as a short-term investment—the idea isn’t to get rich quick, it’s to build financial security over a lifetime.

If you are in your thirties and you put off homeownership for another ten years, you’ll make it less likely that you will be able to pay off that mortgage by the time you retire. Having high housing expenses when you transition to a fixed income is a situation you want to avoid.

Second, being a homeowner brings some serious tax advantages that you would be forgoing if you wait to buy a house. Get into homeownership now and start reaping the tax benefits, along with the equity building.

Third, you cannot know what the future holds. Interest rates are reasonable, and while they could go a little lower, it’s much more likely that they will go up. As this article is being written, the average fixed rate mortgage rate is 4.28%. Ten years ago, the average was 6.03%, and ten years before that,10.34%. The lowest we’ve seen in recent decades was 3.65%, so yes it could go down a bit, but the historical averages are much higher than what we see today. So now is a good time to consider getting into a home, and waiting a few years could cost you even more in increased interest rates.

It’s important not to worry too much about fluctuations in the market—home buying is a long-term endeavor, so if values rise or fall in the short term, it shouldn’t concern you. You could be in the home for 10 years, and over that time, you’re much more likely to see an increased property value while you build up significant equity from your regular mortgage payments.

When Waiting is the Right Move

Waiting to become a homeowner can be a good idea if you aren’t in a place in your life where you can settle down. If you think your career is likely to have you moving within a few years, then it makes less sense to get into a long-term mortgage now.

Whether or not to wait is a lifestyle decision—will you be having kids soon? Are you where you want to be for the foreseeable future? While those are valid considerations, student loans should not be the factor that makes you wait to become a homeowner.

It bears repeating—you borrowed money to get a degree so you could build a better life for yourself. Homeownership should be part of that life, and you shouldn’t let student debt keep you from purchasing a house.

Don’t forget, you don’t have to go it alone. If you’ve got student loan debt that is making you doubt your ability to buy a home, get nonprofit homebuyer coaching so you’ll know exactly what you need to do become a successful homebuyer.


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What is a Credit Limit?

What is a Credit Limit?

A credit limit is the maximum amount of money a lender offers to a borrower. Whether it’s in the form of a credit card, home equity line of credit, or other kind of revolving credit account, there is a maximum amount of money available to the borrower, and that amount is his/her credit limit.

The lender sets a credit limit when extending the offer of credit to the borrower. This will be based on the borrower’s income, credit score, payment history, and other factors included in the loan application.

Loans that have collateral, like a mortgage or a home equity line of credit, will use the borrowers income and the value of the property or the remaining home equity to set the credit limit for the account. This article however pertains to credit card accounts versus other types of loans.

Credit Limit vs. Available Credit

Credit card debt is “revolving” debt, meaning the amount revolves around how much you use and paydown monthly. You have a limit to the amount of funds you can use on a particular credit card account.   A card with a $5,000 limit for example means that is the maximum amount, at any given time, that you can utilize.   Available credit is how much of your credit limit is still available to you after factoring in what you’ve already used. So on a $5,000 credit limit, if you spend $3,000 on that credit card, you’ll have another $2,000 left over in available credit. If you paid down by $1,000, you’d have $4,000 available.

When Your Credit Limit Changes

A creditor may increase your credit limit if you have a good payment history and have not maxed out your borrowing. This is a good thing for your credit score, because part of your score is based on your utilization rate. It can also be risky to have an increased limit if there is a danger that you will increase your borrowing to match. As long as you don’t have a spending problem and continue to pay off your credit card debt diligently, an increased credit limit should be welcome.

There are some cases, however, where your limit could get so high that you will look less attractive to lenders. If you have a total credit limit that is much higher than you could afford to repay or if you maxed out all of your credit, then lenders are unlikely to extend additional credit. If you’ve got more credit available than you earn in a year, then you might want to ask your existing creditors to lower your limits so you present a lower risk of default to new lenders.

There are circumstances when the creditor may reduce your credit limit even if you don’t ask them to. If you are late with payments, or exhibit behavior that makes it look like you might default on your account, the creditor might lower the limit to reduce they could potentially lose if you stop paying. Having your credit limit reduced in this way will certainly be bad for your credit score, and might put you at greater risk of defaulting or going over your credit limit.

Going Over Your Limit

It used to be common practice for credit card companies to let people over-spend and exceed their credit limits. The benefit to the borrower was that the transaction would not be declined at the cash register. But creditors charged standard “over limit” fees for every billing period when the account exceeded the credit limit. That fee was typically something like $35, added to your credit balance—making you go even deeper in debt. On top of that, going over limit could trigger a penalty rate, which would increase the interest rate paid toward the debt, and you might lose any credit card rewards you had built up.

It was common for people to be trapped in a cycle of fees, because the over limit fee itself could push them back over the limit. This kind of thing became such a problem that new laws were passed to limit the practice.

Ten years ago, the Credit CARD Act was passed, and limited the kind of fees creditors can charge. Now, borrowers must explicitly opt-in to have an account be able to go over the limit and incur over limit fees. And those fees are capped; one can only be charged the over limit fee two months in a row if it stays over the limit. The law states the first over-limit incident should incur a maximum fee of $25, and a second incident within six months would incur a $35 maximum fee.

But another provision of the law is that the over limit fee can’t be greater than the amount you’ve gone over. So it you go over your $5,000 limit to $5,010, you can only be charged a maximum of a $10 over limit fee.

Obviously, your best bet is to not opt in to over limit fees. Yes, your card may be declined if you reach your limit, causing embarrassment and inconvenience, but you’ll avoid a lot of extra fees. The CFPB’s (Consumer Financial Protection Bureau) “CARD Act Report” found that in the first 2 years it was in effect, the CARD Act saved borrowers 2.5 billion dollars in over limit fees.

Increasing Your Credit Limit

You can increase your overall credit limit by opening an additional account, but there are some drawbacks; you’ll be increasing your exposure to risk, taking a hit to your credit score (because of the new credit and the recent inquiry), and potentially looking riskier to lenders. On the other hand, a new account might have lower introductory rates, or offer you a good deal on a balance transfer.

Another way to increase your credit limit is simply to ask your current creditors. You can call and request an increased credit limit.  If your payment history is good, your credit score is high, and your income is sufficient, it can be easy to get your creditor to increase your limit without the need to open a new account.

Be aware that this request will likely trigger a hard inquiry on your credit file, so look over your credit reports before you ask, so you can be sure everything there is accurate and up to date. If there is anything negative on your report that might lead the creditor to decline your request, spend some time addressing it before you approach them asking for a higher limit.

If you use your creditor’s web site to manage your account, you may be able to log in online and request a credit increase through the internet. If that option is not available, simply call their customer service number and explain that you’re interested in increasing your credit limit. Your creditor gets these calls all the time and will know exactly how to help you.

Review Your Credit

Before you ask for a credit limit increase, you need to make sure your credit information is accurate and reflects positively on you. If you don’t know where to start, a credit report review is available. Let a nonprofit credit coach help you improve your credit to get the best terms and the optimal credit limits on all of your accounts.

And if you’re thinking of raising your credit limit because you’ve maxed out your existing accounts, then we urge you to seek debt counseling first. Don’t address your debt problems by incurring more debt.


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The First Step to Buying a Home

The First Step to Buying a Home

Homeownership is a worthy goal for everyone, but it’s a big process to undertake. If you’ve never owned a home or have been away from homeownership for a while, it can be challenging to know where to begin.  These tips will help you get started:

Get your finances in order.

This step will be different for everyone. One person might be saving up a down payment, while another might just be beginning the budgeting process. Once you figure out what it means for you, you’ll need to do what you can to get ready financially for this huge life goal.

There are several factors to consider when organizing your finances: your budget, your savings, and your credit.

Budgeting for Homeownership

More than likely, you are already paying some sort of rent payment you’re making every month. At minimum, you can count on that much to be available for mortgage payments going forward.

But will your new home cost more? Will it need renovations or repairs? Are the taxes and insurance going to cost more? Whatever you currently pay for housing, it’s best to set aside extra to make sure you can afford a new, potentially larger house payment.

Besides the monthly housing costs, it’s essential that you budget to afford an emergency savings fund. Set aside some money into an accessible account so you can afford emergency repairs without going into debt or threatening your mortgage.

Generally, we urge people to have around 6 months’ income in a savings fund for emergencies and unforeseen expenses.  This fund can also help you through unexpected housing repairs. Not everything that happens to your home is covered by your insurance. Sometimes you can’t wait to save up for repairs, and that’s why an emergency savings fund is crucial.

For basic budgeting, start with our Budgeting 101 course, available for free in our FIT Academy. Make sure you include goals of saving for homeownership and building an emergency fund.

Saving for Homeownership

The often-cited industry gold standard down payment is 20% to buy a home. Typically having this level of down payment, you may get a more favorable interest rate and save on the mortgage insurance generally associated with loans that have less than 20% down.  Therefore, lots of people strive to avoid mortgage insurance by putting 20% or more down when they purchase a home. However, 20% may not be achievable and the good news is that there are many mortgage options available with lower down payment requirements, especially for first-time homebuyers. Generally, having 2 years of stable household income and a strong credit score will also help you qualify for loans at better rates.

Check out this infographic to see why the need to save 20% is a myth: The Myth of Needing to Save Up for 20% Down on a Home (Infographic).

So saving up won’t be as hard as you might expect, but you still need to build up some cash before home shopping. Besides the down payment and emergency fund, you’ll need money for closing costs, moving expenses, inspections, earnest money, etc. You also may want to decorate your new home.

Your Credit and Homeownership

Another aspect of your finances that is crucial to the home buying process is your credit. Get a free copy of your credit report well before applying for a mortgage—at least 30 days in advance, but six months is better. That way there won’t be any nasty surprises when you talk to a loan officer. And if you do find something negative on your credit report, you have time to correct it so your final credit report reflects positively on you.

Improving your credit is a big topic and many people don’t know where to start. Most importantly, avoid for-profit “credit repair”, as this kind of service is usually expensive and there are no shortcuts to “repairing” your credit. You can improve your credit over time, legally and legitimately by rebuilding your credit.

If you need professional help with rebuilding your credit, nonprofit assistance is available. Find out more about Credit Coaching & Credit Report Review here.

For free educational material about credit, start with “Understanding Your Credit Report”, available from’s FIT Academy.

What NOT To Do First

Too many resources suggest that homebuyers should start with finding a home. This is generally a BAD idea! If you don’t know how much you can afford, you won’t know which houses are worth looking at. If you start home shopping before you get your finances in order, you’ll be setting yourself up for heartbreak if you fall in love with a property only to find you can’t afford it.

By starting with finances, you’ll know what to tell your realtor when it comes to home shopping. You’ll avoid the houses that are wrong for your budget, and make the home buying process more productive.

You’ll also want to start the borrowing process before finding a property. Once you get pre-qualified for a mortgage, you’ll know what you can truly afford, and you’ll know the lender is ready to help you become a homeowner. If you wait until after you’ve found a home to talk to mortgage lenders, you might lose your chance at that property if your initial loan application is rejected.

The bottom line is, don’t start shopping for a home until your finances are in order; that means budgeting, saving, and getting your credit ready to be pre-qualified for a loan.

The Best First Step

Since this step we’ve outlined is a big one, and will be different for every borrower, we’ve got a way to help you get started the right way.

Home Buyer Coaching will pair you with a HUD approved housing counselor. This nonprofit assistance will help you take all the necessary steps to be ready for homeownership. Especially if you are a first-time homebuyer, we recommend a HUD approved homebuyer course. The course is available online or in workshop settings, and will take you through every step of the process so you’ll understand exactly what home buying will entail.

First-Time Homebuyer Education can also help you access special lending programs, so depending on the kind of loan you get, the education might be required for you. The problem is, too many people wait until after they’ve gotten through most of the process before coming to a housing counselor for the required education. It’s much better to start with the education first, so you will have a full roadmap of all of the steps ahead of you.

Just remember, you don’t have to go it alone. There are HUD approved nonprofit housing agencies standing by to offer their expertise, and the sooner you reach out for help, the better the home buying process will go for you.


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Credit Scores – How Do They Work?

Credit Scores – How Do They Work?

To generate your first credit score, your credit report will have to have at least one account on which you make monthly payments. The time it takes for your first score to show up will vary based on the credit score model.  For example, the VantageScore model will create your first score in one or two months, while a FICO score will take up to six months.

Credit scoring is a statistical method that lenders, some insurance companies, and employers use to quickly and objectively assess the credit risk of an applicant. In the case of an employer, they often use the report to assess your character and to look for outside influences that could affect your work ethics.

The score is a number that rates the likelihood you will pay back a loan. Different industries will rank a score differently, but in general, a score of 300 is considered high risk, while 850 is considered low risk. Your credit score is calculated with information from your credit report using a complicated mathematical algorithm. Each time your credit report and score is ordered, it is recalculated. This is sometimes referred to as a credit score model. There are hundreds of credit score models used on credit reports. This is why credit scores don’t always match from one lender to another.

When your credit score is calculated, the model considers both positive and negative information on your credit report, such as how you pay, how much of your credit lines you use, how old your credit is, the balances of your credit, and more.

Credit scores do not consider your income, savings, down payment amount, or demographic factors such as gender, race, nationality, or marital status.

Key Factors That Make up Your Credit Score

Below are most common factors that make up how your credit score is calculated. These factors do vary slightly between credit score models, but in general, they are all very similar.

  • 40% – Your payment history which most people mistakenly think makes up the majority, of their credit score.
  • 21% – Depth of credit or the mix such as a home loan, auto loan, and credit card.
  • 20% – Utilization of your credit limits.
  • 11% – Balances on your active credit.
  • 5% – Recent credit you opened or applied for, called inquires.
  • 3% – Available credit that you are not using.

 The most important factor for a good credit score is paying your bills on time. Even if the debt you owe is a small amount, it is crucial that you make payments on time. Additionally, you may want to keep balances low on credit cards and other revolving credit.  Apply for and open new credit accounts only when needed and when they can be paid down. And pay off debt rather than moving it around. Also, don’t close unused cards as a short-term strategy to raise your score. Owing the same amount but having fewer open accounts may lower your score.

Shopping for a home or car loan? If you have applied for a home or auto loan within the past 365 days, these inquiries are only ignored on your report for the first 30 calendar days. Multiple inquiries within the 14 days following the 30-day grace period are counted as one inquiry that will show up on your report. Too many inquiries can hurt your score, which can severely limit your buying power.

 A very common question from people is “why isn’t my score higher?” or “what can do to improve my score?”

This is most often followed by advice from neighbors, friends and the grocery clerk.  Most often, the advice is opinion based and even just wrong. Every score is accompanied by a maximum of four factors. Also called “reason codes,” these factors are provided by the credit bureau providing the score and are the most significant reason your score was not higher. Depending on the credit score model being used, there can be 100 or more possible codes. Sample factor codes may include: “balances are too high,” “too many retail accounts” and “late payments are affecting the score.” Generally, the factors are listed in their prioritized order of impact to your score from top to bottom. Generally, the use of these codes is the most effective method of managing your credit score. If your score is already over 800, the codes have less impact on your score because you’re already considered low risk.


© 2019 IdentityIQ, LLC


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6 Fun Ways to Save As a Family

6 Fun Ways to Save As a Family

Meeting financial goals as a family can be challenging. But inspiring your family to help and contribute to a financial goal doesn’t have to be a painful process, especially when the result is an exciting family vacation, a new family car, or college savings. In the spirit of America Saves Week, I’ll share some ideas on how to save as a family for all those items and bucket-list experiences.

1. Gamify It!

In my family, we often make a game of who contributes to a joint family pot for that month’s fun activity. A game of monopoly can turn into a real contest, as anyone who loses is asked to contribute a small amount to that month or week’s activity of choice (such as a meal out, or family movie). Of course, contributions should be proportional to earnings – teens might contribute $5 from their part-time job or allowance, while adults would be expected to contribute much more. Still, the spirit of the game is focused on sharing and enjoying together – and because everyone has a stake, we enjoy it all so much more.

2. Making Money Can Be Fun

Every year around the holidays, my entire extended family likes to take a vacation somewhere warm, so we start planning and saving a year in advance. By each contributing to the holiday vacation fund, our money goes much farther, and we’re often able to visit really cool places we might’ve not otherwise afforded. Of course, if we can easily afford to contribute our share, we do so, but when money is tight, we find fun ways to raise cash for our share of the contributions. Last year, for example, some of my cousins hosted a bake sale. Others sold items they’d knitted, art they’d produced, and so forth. All of the proceeds went straight into the family vacation fund.

3. Sell, Sell, Sell!

A family garage sale can be an enjoyable and rewarding way to raise extra cash for shared activities or purchases. If your family wants a new flat-screen TV, game console, or other piece of technology or furniture, why not start by selling what you already have and don’t need? A traditional garage sale is one good way to raise cash, as is selling unused items online (this tends to be the better option for selling electronics and gadgets).

4. Match It!

Often, children’s only way to save is to use their holiday or birthday gift money. It can be challenging for kids to save money they so badly want to spend and enjoy immediately, so it’s important to offer incentives for doing so. One idea is to match dollar for dollar every bit of money they save from their gifts. That ensures kids get the immediate gratification of knowing their saved gift money is being doubled, but also enables them to feel empowered by having chosen to save and contribute to family goals.

5. The Envelope Method

When saving for multiple goals, the envelope method is an excellent way of keeping all the monies separate for their intended uses. Simply mark each envelope with a stated goal, and contribute regularly to each until the goal amount is met. For small children, it can be rewarding to contribute to smaller family goals, such as ice cream or a movie rental. A $10 or $15 goal can mean a $1 or $2 monthly contribution from their allowance. This helps children learn the value of saving, and builds confidence in their ability to do so.

6. Your Credit Union Can Help

Your local credit union can be an excellent resource for helping your family save together. From traditional savings accounts or CDs to holiday savings accounts, your credit union can help you select a financial product that can help your family in reaching its shared goals faster. For larger goals, in particular, a shared family account can be an excellent resource for keeping your family on track to realizing your financial wishes.
Happy saving!
By Janet Alvarez, 
Janet Alvarez is the news anchor for WHYY/NPR and the Executive Editor of Wise Bread, an award-winning publication focused on promoting financial literacy.


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Why is My Credit Score Different on Each Report?

Why is My Credit Score Different on Each Report?

There are three major credit reporting bureaus in the United States: TransUnion™, Equifax™, and Experian™. Each one has its own unique mathematical method of calculating a credit score for the consumer. And each bureau may have slightly different information on how they calculate credit scores that can seem confusing. So, why are the scores different from one to another?  For some people, credit scores may vary as much as 40 points between the three credit reporting agencies. When you apply for a loan or credit card, your credit score is a key factor in getting approved and will influence the type of interest rate and lines of credit you qualify for. The lower your credit score is, the more likely you are to receive a higher interest rate. In fact, you may end up with less credit line or no approval at all.

There are three key reasons your scores may be different from one credit bureau to another.

1. The Credit Bureaus

Credit scores can vary because of differences in the credit scoring algorithms that each reporting agency uses. There are many distinct credit scoring formulas used by creditors, lenders, and insurers to evaluate your creditworthiness. These scores will evaluate your credit report differently in order to match the specific characteristics of the entity that is using your report. The most common credit score model that consumers are exposed to are Vantage and FICO.

2. Your Creditors

For the most part, your credit report is a simple collection of data sent to the credit bureaus from your creditors. That means if you tell your auto lender that you have a new address, they could report that new address to the credit bureaus. If your payment is late, that will be reported. The cycle is ongoing. Also, creditors report your account information to the credit bureaus in different ways and different times throughout the month. As a result, one credit bureau may know you paid your home loan late but another bureau may not have processed or received the data yet. The result can be vastly different credit scores until the data is updated at both credit bureaus.

3. When the report is ordered

Let’s say you are car shopping over a 30-day period. When you set out on your mission, let’s say 710 was your credit score. Ten days later, you go shopping someplace else, and it’s 715. Twenty-five days later you make your last stop and somehow its dropped to 605. Well, the reason is that each report, ordered and accessed on the same day, may contain the same accounts, but could be missing information. Think of them as living records that are never perfectly in sync.

Different scores and mismatched reports can often feel like acting on your credit is a moving target. But as long as you remain aware of the effect timing and reporting and the multitude of other factors that go into calculations can have, you’ll already be working with more information than the average American. Monitoring and managing your credit will give you a powerful advantage when deciding how and when to leverage your score for a new line of credit.

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Starting Credit for the First Time

Starting Credit for the First Time

Just because you leave home for the first time doesn’t mean you’re ready for total independence. Depending on how much you have paid attention to your credit score prior to making your grand exit, financial independence might be a larger issue than you expect.  If you thought credit was just about credit cards and buying a home – think again.

How Does Personal Credit Affect You?

In today’s economy, your personal credit determines what you can purchase, and how much you will pay for it. For example, your credit score can impact:

  • What apartment or home you live in
  • Your insurance rates
  • Interest rates
  • Your first job

That’s right, employers have the right to screen your credit report and score as part of the hiring process. This makes credit paramount to your financial health.


Not Having Credit Is Expensive

Without a proven track record of your creditworthiness, financial institutions will likely view you as a high-risk borrower. For that reason, you will have limited options to build your credit. Products you are eligible for will be low risk for the bank, which means you might incur:

  • Higher interest rates
  • Higher fees
  • Lower credit limits

Additionally, your credit usage habits may be closely monitored. If you appear to be racking up too many charges, your credit card provider may freeze your credit line until they can talk with you about your spending. It’s not that they don’t want your business; they just want your business under terms that are safe to them. Until predictive risk analysis becomes more accurate, this is how financial institutions test the waters and assess your risk.


How Do I Start To Build Credit?

Financial institutions typically process consumer credit applications through automated processing systems. Consumers who do not have a credit history won’t have a credit score either. Most creditors decline an applicant with no credit – which is the problem. The best strategy for you to build credit is to start small credit lines and less risky credit sources. To understand this strategy, let’s dive into the differences between secure and unsecured debt.


Secured Credit Cards

Secured credit cards, offered by almost all reputable banks and credit unions, are very popular with consumers who are building their new credit histories. Secured credit is credit backed by the consumer. In other words, the consumer makes a deposit with the creditor, who then issues a credit card with a credit limit equal to the amount deposited.

For example, if you deposit $800, then the bank will issue you a secured credit card with a credit limit of $800. This deposit is usually accompanied by monthly fees. Banks offer this type of debt because the risk is low for them – they will get their money back if you don’t pay them. Banks will usually issue secure credit cards if you have managed your bank account well – if you do not have a history of bounced checks or using check overdraft protection. As you continue to use your card and pay your balance off, your credit history will grow. Eventually, can apply for unsecured credit cards that do not require a deposit. One thing to note about secured credit is that your cash deposit is typically locked up and not accessible while you have the secured card. And unfortunately, the money often does not earn interest.


Unsecured Credit Card

Unsecured debt means that the creditor has no collateral such as a car or home backing the credit.  Lenders who issue unsecured credit take the risk that you will not pay them back for what you borrow.  Because unsecured credit is a higher risk proposal, lenders are more cautious when reviewing the applicant’s credit history. If you don’t have credit history, it may be more difficult to land an unsecured credit card.  In most cases, the easiest way to acquire an unsecured credit card, without a credit history, is through a gasoline or retail department store credit card.

Retail & Department Store Credit Cards

Retail cards are credit cards issued for use at specific retail stores such as Kohl’s, TJ Max or Target.  They can also include other services or products such as Chevron or Shell gasoline. Retail cards are generally easier to obtain, even if your credit history is completely new. Most likely, you will get a low credit limit such as $300.00. As you use the card (and make on-time payments) your lender may automatically increase the credit limit. This can happen in a matter of months.

Expect these cards to have high interest rates, which means it’s important to pay them off (entirely) each month.


Bank Debit Cards Reporting on Your Credit Report

Most debit credit cards are another form of a “secured” credit card. They are backed by the balance in your bank account. But, if your bank allows, you can use your card as either a debit or credit card. This is a great option to start building your credit history and eventually qualify for better credit options. It is possible you’ll incur extra fees for using your card in this way, so double check with your bank for exact fees and terms of use.


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