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Use Your Home Equity to Prevent Bad Credit
Author David Schneider | Jan 07,2008
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The problem with bad credit is that once you have it, moving up to a higher credit score can be difficult. With poor credit, some lenders won't give you loans, or they will charge you higher interest rates. As you have to pay more each month, this increases your chances of missing payments and further lowering your credit score. Fortunately, you can prevent this cycle from happening while preventing bad credit by using the equity in your home.Use Your Home Equity to Pay Off Credit CardsOne of the biggest wreckers of good credit is credit card debt. Banks make it so easy to obtain credit and using your credit card at stores or online is even easier than paying with cash. This makes it very tempting, and all too easy to overextend yourself and get into a debt you can't handle. The problem worsens with high interest rates that make it difficult to pay down the principal balance.If you have equity in your home, then you may be able to obtain a home equity loan, also known as a second mortgage. With a home equity loan, you'll be able to pay off all of your credit cards. The interest rate will often be much lower than what the credit card companies were charging, and you'll have many years to pay off the loan with a predictable fixed rate. Your will prevent yourself from having a bad credit score, as long as you don't max out your credit cards after taking out the second mortgage.Use Your Home Equity to Avoid BankruptcySometimes you go deeply into debt through no fault of your own, such as when an accident happens and you have many medical bills. If the bills are too high, it could force you into bankruptcy, which will result in having bad credit. Instead of declaring bankruptcy, use your home equity to consolidate all your bills and pay off your creditors. You'll still have to repay the expenses, but you'll have a lower monthly payment, making it easier to repair your credit.Use Your Home Equity to Consolidate Consumer DebtsIf you have trouble paying off other loans, such as your car payment or college tuition, you can consolidate these debts as well. With a fixed rate and extended repayment time, you'll be able to pay for the things you own without the risk of ruining your credit score. |
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