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After You Get a Bad Credit Mortgage: 5 Financial Tips

By Barbara Marquand
Mortgage Credit Problems Columnist


You finally saved enough for a down payment, improved your credit to qualify for a mortgage and moved into your new home. Congratulations. But guess what? The financial work isn't over.

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Here are five things to do now that you're a homeowner.

1. Start a repair fund.

Apply the discipline you used to save for a down payment to build a savings account for home repairs and remodeling. Aim for saving 1 percent to 3 percent of your home's value every year, recommends the National Endowment for Financial Education. Then when the furnace breaks down or you need to replace the bathroom tile -- you'll have money in the bank to take care of the problem.

2. Build up your emergency savings fund.

You should have at least three to six months of savings to cover living expenses in case you lose your job. This will help you cover mortgage payments and avoid foreclosure in case an emergency happens. Have money deducted automatically from your checking to a savings account so it's out of sight before you have a chance to spend it each month.

3. Pay all your bills on time.

If you had to get a bad credit mortgage loan, you're paying higher interest than if you had gotten a mortgage with good credit. Work toward improving your credit score by paying all your bills on time so eventually you can refinance to a lower interest-rate loan. Experian's National Score Index showed the average consumer's credit score dropped by a whopping 98 points from making one late payment on a car loan. With a better score you won't have to resort to a mortgage for bad credit.

4. Avoid credit card debt.

Your credit score takes into account how much of your available credit you use. Keep credit card balances below 30 percent of your credit limits; maxed-out credit cards hurt your score. In addition, maintain a reasonable number of credit cards, so you don't get in a debt trap. Two or three accounts is plenty for most consumers. Maintaining accounts for a long time helps your credit score, so if you decide to close an account, cancel the newest credit card first.

5. Maintain your home.

Keep up with routine maintenance to help your home retain value. Fix minor problems while repair costs are relatively cheap instead of letting things go until you have a big mess on your hands.

Once you're ready to refinance you can get up to four free quotes from lenders by filling out the form on this page.

Sources

http://www.smartaboutmoney.org/ / http://www.nationalscoreindex.com/

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