Credit score is a common entity and an important factor in getting approved for loans, especially when buying a house or a real estate property. Lenders assess the creditworthiness and qualification of the borrower, whether their application is approved or not by looking into their credit history. Credit scores are used to gauge if the borrower is high risk or have the potential to default his loan according to his financial history. A home loan is one of the many options you can choose or you could consider self employment 401k plans offered by financial institutions and custodians.
Self Employment 401k and correct credit
Individuals planning to purchase and invest on a home must make sure of their credit report accuracy. There is a massive modification in the mortgage landscape perpetrated by the economic downturn in the previous years. Short sales and increase in foreclosures have been quite rampant in the contemporary real estate industry. You can comply with the tedious processes in securing a loan or you could start by knowing the answer to the question, how does a 401k work. If you want tax benefits and efficiency, self employment 401k plans are for you. However, it is also noteworthy to understand the different ways on how to increase your credibility for a home loan by boosting your credit score.
Here are some of the guidelines to help you increase and improve your credit score, so as to secure the funds to invest in real estate.
Payment history of the borrower comprises 35% of the total score
The frequency and habit of payment carry the most weight in the credit report of the borrower. Some of the prime reasons for a lower FICO score include late payment of credit card dues, automobile loan, or any other types of credit. To improve your FICO score, you need to pay your bills as per the agreed upon schedule.
Credit utilization comprises 30% of the total score
This percentage is determined by calculating the ratio of the current or active outstanding debts to the overall available revolving credit. Simply put, this is the ratio of debt balances to the credit limit. It is imperative to pay off debts while lowering utilization ratio in order to increase the credit score.
Boosting your credit score is essential to qualify for a home loan. For wiser investment, it is highly recommended to consider self employment 401k plans. This plan includes a 401k loan plus tax benefits for real estate investment.