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Apache is functioning normally

When you look at your investment portfolio, does Rube Goldberg come to mind? Goldberg was a Pulitzer Price winning cartoonist famous for drawing complicated contraptions designed to perform simple tasks. In fact, Webster’s New World Dictionary defines a “Rube Goldberg” as a “comically involved, complicated invention, laboriously contrived to perform a simple operation.”

Investing should be simple. It’s not necessary to have a dozen or more mutual funds covering a wide range of asset classes. Such “diversity” complicates the management of your investments and isn’t likely to increase your returns or lower your risk.

Rube Goldberg came to mind when I recently read an email from a reader named Jason:

This is a great email on an important topic. Are we going to invest to mimic the overall market, or are we going to collect a dozen or more holdings? What’s the right approach?

I addressed Jason’s question about “value” funds in the podcast. In short, an index is designed to determine value versus growth based on math. They use ratios such as the p/e (price to earnings), p/b (price to book), and other objective measures of value.

But let’s get back to Jason’s main question – how complicated should investing be? The starting point is the 3-Fund Portfolio.

1. Three-Fund Portfolio

There’s a group loosely referred to as the Bogleheads (named after Vanguard founder, John Bogle)who advocate the Three-Fund Portfolio. The three-funds cover the three main asset classes (I’ve included Vanguard ETFs one could use to build a 3-fund portfolio, but mutual funds and investments from other companies could be used, too):

  • Total Market US Equities (Example: VTI)
  • Total Market Intl EquitiesExample: VGTXS)
  • Total Bond Market (Example: VBMFX)

With those three ETFs, you’d have the investment markets covered, but only three funds to manage, allocate and rebalance. This is the direction I’m heading as I simplify my investing. Note that you could simplify this even further with a target-date retirement fund. Vanguard’s target-date funds, for example, use the above three investment types along with an international bond fund.

2. Slice and Dice

Many investors aren’t satisfied with the above 3-Fund portfolio. They look to further diversify their investments into sub-asset classes. Frankly, I’ve taken the slice and dice approach for more than two decades.

While there is no one way that one can construct a portfolio that goes beyond the core asset classes, here are five common sub-asset classes that many investors want more exposure:

  • Small-Cap – Smaller companies historically have produced higher returns, but also come with more volatility.
  • Value Funds – These funds seek to invest in undervalued companies, and historically have outperformed growth companies (although there is some debate on the relative performance between value and growth).
  • Emerging Markets: As with small caps, emerging markets historically have generated higher returns in exchange for greater volatility.
  • REITs – real estate investment trusts offer stock-like returns with some measure of diversity.
  • Commodities – While the returns aren’t as rich, many believe commodities offer valuable diversity to a portfolio.

I have positions in all of these sectors, although as I mentioned I’m working to simplify my portfolio.

3. Diversity Has Nothing to Do With the Number of Mutual Funds in a Portfolio

It’s critical to understand that even a 3-Fund Portfolio has exposure to each of these asset classes. As an example, a total U.S. equity fund has exposure to small caps, value, REITs, and even commodities. Simply by owning multi-national companies gives exposure to many asset classes.

In the case of VTI, one gets exposure to the following according to Morningstar:

  • Micro-cap: 2.62%
  • Small-cap: 6.47%
  • Mid-cap: 29.02%
  • Real Estate: 3.72%

Further, VTI gives equal weighting to value and growth stocks.

Similarly, a totally international market will have exposure to emerging markets. VGTXS, for example, has 14.52% in emerging markets. The point: Most investors will get little if any benefit from seeking additional exposure to these sub-asset classes beyond what a total market fund provides.

4. Why slice and dice

Having said all of that, there are times when exposure to sub-asset classes is justified. The first is that an investor’s personality is drawn to this type of investing. While this may surprise some, the behavioral side of investing should never be ignored. Those that like to dabble in more complex asset allocation plans won’t hurt themselves, so long as they keep costs low and stick to their plan.

Second, a good argument can be made for additional exposure to real estate. REITs enjoy stock-like returns and add diversity to a portfolio.

5. Problems with slice and dice

There are some realities to a complicated portfolio that should be considered:

  • There’s absolutely no guarantee that it will improve your returns or lower your risk compared to a basic three-fund portfolio. Just because small caps outperformed the general market in the past doesn’t mean they will in the future. In his book Don’t Count on It!: Reflections on Investment Illusions, Capitalism, “Mutual” Funds, Indexing, Entrepreneurship, Idealism, and Heroes, John Bogle says that small caps have outperformed the general market mainly because there were a couple of years where they did very well compared to the overall market. There’s no guarantee such performance will repeat itself.
  • Each additional investment added to a portfolio increases the portfolio’s complexity. Additional funds add to the burden of monitoring investments and rebalancing them. It often requires one to allocate across multiple account types, which further complicates the whole affair. (See the Rube Goldberg image above for more details.)

My own feeling is both the three-fund portfolio and the slice and dice portfolio will work, but complication is the real difference. And for what it’s worth, robo advisors like Betterment use somewhat complicated portfolios. The difference is that they handle all of the rebalancing for you.

6. My Own 401(k) plan

Portfolio allocations can be more complicated with 401(k) plans. Unlike an IRA, we have limited investment options, many of which are expensive. Nevertheless, I’ve worked hard to simplify my own 401(k) portfolio by investing in just three funds. In the process, I’ve tried to create a standalone portfolio that doesn’t require additional allocations from non-retirement assets or other retirement plans. The plan will be fully diversified on its own.

Here are the three funds I use in my plan:

  • Dodge and Cox International Stock Fund (DODFX) – 40%
  • Fidelity S&P Index Fund (FXSIX) – 40%
  • Vanguard Total Bond Fund (VBTLX) – 20%

The Dodge and Cox fund is an actively managed fund with an expense ratio of – .64%. It’s a great fund in my opinion, and the fee is actually not high for actively managed funds. My total cost for keeping all three funds is .29%, even with the Dodge and Cox fund. With just three funds, rebalancing is easy. I don’t feel that slicing and dicing into a variety of funds will have a material effect on the long-term performance of my 401(k).

I’m not entirely closed to the idea of adding some additional asset classes to my plan, particularly REITs. Whatever you choose, however, work hard to keep it simple.

  • Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at RobBerger.com.

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Source: doughroller.net

Apache is functioning normally

Goldman analysts lowered their 2008 earnings estimate for JP Morgan Chase to $3.30 from $3.44 yesterday after the bank warned investors it could lose $450 million on home equity loans during the first quarter alone, according to a report by Marketwatch.

Last quarter, Chase reported $248 million in write-offs tied to home equity loans, up from $150 million in the third quarter and $51 million in the fourth quarter of 2006.

The net charge-off rate climbed to 1.05 percent in the fourth quarter from 0.65 percent in the third quarter, more than quadrupling the 0.24 percent rate in the fourth quarter of 2006.

Now factor in plummeting home prices and high loan-to-value ratios and you’ve got a huge problem, especially with “walking away” becoming all the rage these days.

Chase attributed the escalating losses to an over-reliance on Fico scores and underlying property values, along with layered risk and direct vs. indirect loan origination channels.

About a month ago, the New York-based bank reduced the maximum loan-to-value on second mortgages via the wholesale channel to 85 percent in many areas, while stamping out loans at or above 100% LTV.

According to a slide from Chase’s Investor Day presentation held on Wednesday, the bank originated $48.3 billion in home equity loans in 2007, a slim decline from the $51.9 billion originated in 2006 given the high-risk environment.

And as of the end of January, Chase still had $15.2 billion in CMBS exposure, $6.3 billion in Alt-A exposure, $2.4 billion in subprime and subprime CDO exposure, and $5.4 billion of CDO warehouse and unsold positions.

Shares of Chase were off $1.52, or 3.58%, to $40.92 in late trading Friday, not far from their 52-week low of $37.66.

Below is the delinquency rate chart for home equity loans in Chase’s portfolio:

(top photo: celinet)

Source: thetruthaboutmortgage.com

Apache is functioning normally

CD rates have been slowly dropping for several weeks, and last week was no different. Bread Savings, MYSB Direct and Rising Bank all lowered the annual percentage yield on some of their CD accounts. But while past weeks have seen rate drops largely limited to long-term CDs, last week’s drops were across a range of common terms, from six-month to five-year CDs.


What does this mean for savers?

If you’ve been considering opening a CD, now is the time to do it. Whatever your savings timeline, rates remain high overall — but they’re slipping. So the longer you wait, the lower your earning potential could be.

Experts recommend comparing rates before opening a CD account to get the best APY possible. Enter your information below to get CNET’s partners’ best rate for your area.

Today’s best CD rates

Here are some of the top CD rates available right now and how much you could earn if you deposited $5,000 today.

*APYs as of Dec. 4, 2023, based on the banks we track at CNET. Earnings are based on APYs and assume interest is compounded annually.

CD rate trends — where are APYs heading?

CD rates have steadily increased since March 2022 as the Federal Reserve regularly raised the federal funds rate to combat inflation. This rate affects how much it costs banks to borrow and lend money, so the higher it is, the higher banks raise their CD rates to attract new customers (and their money).

But with inflation finally cooling, the Fed has opted to pause rate hikes at its last two meetings. As a result, banks have begun easing their rates. Here’s where rates stand compared to last week:

Term CNET Average APY* Weekly Change** Average FDIC rate
6 months 4.93% No change 1.43%
1 year 5.26% No change 1.85%
3 years 4.35% No change 1.39%
5 years 4.10% -0.24% 1.39%
*APYs as of Dec. 4, 2023. Based on the banks we track at CNET.
**Percentage increase/decrease from Nov. 27, 2023, to Dec. 4, 2023.

From Nov. 27 to Dec. 4, rates have remained largely unchanged, with only a 0.24% decrease in average five-year CD terms. However, this is looking at overall averages. On a more micro level, several banks have lowered their CD rates recently, and experts expect rates will continue to decline over the next several months.

“Consumer Price Index (CPI) numbers for October showed below-expectation inflation for both headline CPI (3.7% to 3.2%) and core CPI (4.1% to 4.0%),” said Jesse Carlucci, Ph.D., CFP, chief investment officer at Arrow Investment Management. “Together with comments recently from the Federal Reserve chair, Jerome Powell, this has led to the expectation that we have reached the peak of the interest rate cycle.”

Why you should open a CD now

CD rates aren’t likely to drop dramatically in the near future, but even the gradual erosion we’ve seen lately makes a difference in your bottom line. When you open a CD, you lock in the current rate in exchange for agreeing to keep your funds in the account until the term is up. That means your earnings are guaranteed even if rates go down in the future. High-yield savings accounts, by comparison, have variable rates that rise and fall in response to federal funds rate changes.

“[CDs] are a good place to keep short-term savings, like saving for a baby or to buy a home,” said Bola Sokunbi, founder of Clever Girl Finance and CNET Financial Review Board member. “Although CDs might have penalties for early withdrawal, you could look at those penalties as an incentive to leave your savings alone if you don’t really need to touch it.”

In addition, CD accounts with FDIC-insured banks or NCUA-insured credit unions are protected up to $250,000 per person, per institution if the bank fails. This makes them a low-risk way to grow your savings and enjoy peace of mind.

Factors to consider when selecting a CD

APY is an important factor when comparing CD accounts, but it’s not the only one.

“I wouldn’t stress too much about the difference in a few tenths of a percentage,” said Bernadette Joy, a personal finance coach and CNET Financial Review Board member. “But I do think it’s important to make sure the CD is at least earning more than comparable high-yield savings accounts. HYSAs are more liquid, and if you’re going to lock up your money for several months, you should get paid more to do so than an HYSA.”

In addition to comparing APYs, you should also weigh the following when choosing a CD:

  • How soon you’ll need the funds: Most banks charge a penalty if you withdraw money before the CD matures. This can eat into your interest earnings. So, be sure to choose a term that fits your savings needs.
  • Minimum deposit: Some CDs require a certain amount to open an account — typically, $500 to $1,000 — while others have no minimum deposit requirement. This can narrow down your choices.
  • Monthly fees: Fees can erode your balance. Many online banks don’t charge maintenance fees. They have lower overhead costs than banks with physical branches, and they pass these savings down to consumers through higher rates and fewer fees. Still, be sure to read the fine print for any account you’re considering.
  • Federal deposit insurance: Confirm that any institution you’re considering is an FDIC or NCUA member to ensure your money is protected in the event of a bank failure.
  • Customer service: Read customer reviews and ratings on sites like Trustpilot to make sure the bank is responsive, professional and easy to work with.

Methodology

CNET reviews CD rates based on the latest APY information from issuer websites. We evaluated CD rates from more than 50 banks, credit unions and financial companies. We evaluate CDs based on APYs, product offerings, accessibility and customer service.

The current banks included in CNET’s weekly CD averages are: Alliant Credit Union, Ally Bank, American Express National Bank, Barclays, Bask Bank, Bread Savings, Capital One, CFG Bank, CIT, Fulbright, Marcus by Goldman Sachs, MYSB Direct, Quontic, Rising Bank, Synchrony, EverBank, Popular Bank, First Internet Bank of Indiana, America First Federal Credit Union, CommunityWide Federal Credit Union, Discover, Bethpage, BMO Alto, Limelight Bank, First National Bank of America, Connexus Credit Union.

Source: cnet.com

Apache is functioning normally

Majoring in science, technology, engineering and mathematics (STEM) isn’t the only way to land a job that makes college worth it.

A liberal arts degree can pay off, too — but you may need to put in more legwork than a STEM major would.

“Going to school and being a liberal arts major in and of itself is not going to give you the same outcomes as focusing on your career preparation in tandem with going through your college experience,” says Joshua Kahn, associate director of research and public policy at the National Association of Colleges and Employers (NACE).

If you want to major in English, history, sociology or another nontechnical field, here are some expert-approved tips to help make your liberal arts degree pay off.

Do your research before choosing a program

Before deciding on a college or specific degree program, research your post-diploma employment and salary prospects.

“Check out the schools that have really good internship rates for liberal arts majors,” Kahn says. “Ask about resources at their career center, and what they’re specifically doing for liberal arts majors.”

Research student outcomes at various colleges through the U.S. Education Department’s College Scorecard. You can also use the U.S. Department of Labor’s Occupational Outlook Handbook to compare average earnings across various industries and job functions.

Earnings data can help you determine how much to borrow for college. As a rule of thumb, aim for monthly student loan payments that won’t exceed 10% of projected after-tax monthly income in your first year out of school. So, a borrower who will make $50,000 a year should ideally take out no more than $29,000 in student loans.

Start career planning early

Start thinking about your future career as early as high school or your freshman year of college. You don’t need to know exactly what you want to do yet, but having a dream career in mind can help you build a path to your first job.

“Career-readiness is really an ongoing process. It’s not a one-time thing, so I think it’s really important for students to start out early,” says Leigh Anne Byrd, assistant director of career development and college relations at Virginia Tech, a large public university.

Work with a career counselor at your university or reach out to alumni for informational interviews about their jobs. And while researching, remember that your future career doesn’t need to align perfectly with your major — especially in the liberal arts.

“A student might think that, as a history major, maybe they need to go into education, but history majors can work in the media, they can work in business, they can do nonprofit work, they can work in the government or law,” Byrd says.

Get internship and work experience

Practical work experience is crucial to landing your first job. An internship helps you build a resume, professional network and new skills.

“Employers say that students with these experiential learning and internship opportunities are deciding factors for them when they’re making selections of who their hires should be,” Kahn says.

Doing undergraduate research with a faculty member, joining a study abroad program and job-shadowing are other ways to gain hands-on experience, Byrd advises.

Consider a second major, minor or certificate

While liberal arts majors have strong long-term salary prospects, STEM students earn more straight out of school: 99 of the top 100 programs that lead to the highest average salaries in the four years after graduation are in STEM, finance or economics, according to an April 2023 College Scorecard analysis of 36,000 undergraduate programs.

If you major in a liberal arts field, adding a second major, minor or professional certificate in a more technical subject could give you the biggest payoff.

Even if you don’t pursue a formal STEM certification as a liberal arts student, take as many elective classes as you can in areas like statistics, artificial intelligence and coding, says Mark Schneider, director of the Education Department’s Institute of Education Sciences.

“You have to follow your passion, but you better have some skills to put bread on the table,” Schneider says.

Market your skills effectively

Technical skills can help your resume shine. But employers also value liberal arts students for their soft skills, like critical thinking, communication, adaptability, cultural and ethical awareness and emotional intelligence, explains Anthony Pernell-McGee, executive director of career exploration and development at Oberlin College and Conservatory, a private liberal arts and music school in Ohio.

“Students who graduate from the liberal arts are lifelong learners,” Pernell-McGee says. “We hear from employers that our students may not have the business background, but within six months, they can learn it, and then they come to the table with the other core skills that the employers like their candidates to have.”

Reach out to your university’s career center for personalized help in marketing your skills. You can set up a one-on-one session with a career counselor, attend resume and interview workshops, get connected to your alumni network and access other resources.

Source: nerdwallet.com

Apache is functioning normally

Apache is functioning normally

Veterans who are unable to work because of a service-related disability may qualify for Total Disability Based on Individual Unemployability (TDIU) benefits from the Department of Veterans Affairs. They receive the same benefits as veterans with a 100% disability rating (even if they don’t have that rating)

.

  • To qualify for TDIU, you must be unable to work and have a minimum level of service-related disability rating.

  • The Department of Veterans Affairs (VA) reviews claims and provides benefits for TDIU.

How much is TDIU?

In 2024, TDIU benefits range from $3,737.85 to $4,433.39

. Monthly compensation might be higher for eligible veterans with multiple children.

Veterans who qualify for TDIU are eligible for the same benefits as someone who has a 100% disability rating with VA disability benefits. The VA adjusts the rates based on the SSA’s annual cost-of-living adjustment

.

Receiving TDIU comes with enhanced eligibility status for VA health care benefits. That isn’t a guarantee that you’ll receive them, but the VA says you are more likely to be approved for them if you receive TDIU.

.

How to qualify for TDIU

To qualify for TDIU, a veteran must:

  • Have a service-related disability rating of 60% or higher, or two service-related disabilities: one with a rating off 40% or higher, and a combined disability rating of at least 70%

    .

  • Be unable to work in a job that supports them consistently because of the service-related disability.

🤓Nerdy Tip

If you have one service-related disability, it must have a rating of at least 60%.

If you have two service-related disabilities, at least one must be rated 40% or higher — but together, they must have a combined rating of at least 70%.

The VA assigns the percentage ratings for disabilities.

You meet the unemployed requirement if you are unable to earn enough to support yourself, also known as substantial gainful activity (SGA). Generally, this means you are unable to work consistently and pay for necessities such as food and shelter.

  • The Social Security Administration (SSA) determines the monthly income limit to qualify for TDIU. The substantial gainful activity limit for 2023 is $1,470 per month ($2,460 if you’re blind). In 2024, the limit is $1,550 per month ($2,590 if blind). If you earn more than the monthly income limit, you are unlikely to qualify for TDIU.

  • You don’t have to be unemployable in every field to qualify for TDIU

    . You can still qualify for TDIU if you have marginal employment, which is a job that provides earnings below the current poverty threshold for an individual. Marginal employment can also include work in a “protected environment,” such as family business where you receive accommodations that other jobs cannot provide. In that case, you might still qualify for TDIU even if you earn more than the annual poverty threshold.

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TDIU qualification examples

Here are several examples of how people might qualify or not qualify for TDIU.

When determining TDIU benefits, the VA doesn’t consider the following information:

  • The applicant’s age

    .

  • How non-service-related disabilities affect the applicant’s ability to keep substantial gainful employment.

  • Reasons (other than the applicant’s service-related disability) the applicant left a job.

TDIU vs. Social Security Disability Insurance (SSDI)

The main difference between TDIU and Social Security Disability Insurance (SSDI) is that TDIU is for disabled veterans who are unable to work in a job that supports them consistently, and SSDI is for disabled people who are not able to work at all. Although the two programs have the same goal, they have several differences.

Veterans Affairs

Social Security Administration

Program contribution

Doesn’t require the beneficiary to contribute financially to the program.

Requires beneficiaries to have contributed financially to the program.

Disability type

Considers only service-related disabilities that prevent someone from working.

Doesn’t restrict disabilities to those related to military service.

Disability rating

Doesn’t require someone to have a VA rating of 100%.

Requires someone to be completely disabled (the equivalent of a VA rating of 100%).

Work ability

Only requires that an applicant be unable to work a job that meets the definition of substantial gainful employment.

Requires that an applicant be unable to work any type of job.

Veterans may qualify for both TDIU and SSDI, but the programs are from different federal agencies, which means you’ll have to apply to each program separately if you want to receive benefits for both

.

🤓Nerdy Tip

The SSA expedites veterans’ claims for SSDI benefits. You might need to self-identify as a veteran when you apply for SSDI and provide proof of VA-rated disability.

How to apply for TDIU

To receive TDIU benefits, you’ll apply for VA disability benefits and provide documentation such as medical records to show that you are unable to keep steady employment. You’ll also submit records of your work history and education so the VA understands what work you’ve done in the past and what you’re trained to do.

When filing a disability claim for TDIU, you’ll submit two forms that are unique to these types of benefits:

  • A Veteran’s Application for Increased Compensation Based on Unemployability (VA Form 21-8940).

  • A Request for Employment Information in Connection with Claim for Disability Benefits (VA Form 21-4192).

The first form requires information about your disability and medical treatment, employment history and education

. You’ll need to provide dates that you were in the hospital within the last 12 months, the dates you last worked full-time and became unable to work because of your disability, the highest annual income you earned during your career and the time lost at each job you’ve held during the past five years due to your service-related disability.

Your most recent employer will fill out and submit the second form

. They will send it directly to the VA after they’ve filled it out, so you only need to provide them with the form.

3 things to know about TDIU

  1. The forms require a lot of information. Because TDIU requires two additional forms, you’ll have to provide a lot of information about your disability and work history. It might take you a while to collect all of this information, so be prepared to gather everything in advance.

  2. Your most recent employer needs to submit a form. Your employer must fill out the Request for Employment Information in Connection with Claim for Disability Benefits — you can’t do it. The employer’s HR department should know how to handle the form. Once you’ve provided the form, ask for an estimate of when they’ll submit the form to the VA, and ask for an email confirming that they’ve submitted it.

  3. You can also receive additional government assistance. Because VA benefits are separate from SSA benefits and those offered through individual states, such as Medicaid, you can also apply for other assistance programs. However, qualifying for TDIU does not guarantee that you are eligible for other benefit programs.

Source: nerdwallet.com

Apache is functioning normally

Whether you’re a first-time homebuyer or a seasoned homeowner, there’s no denying that purchasing a home is a huge financial decision.

You’ll likely have to make a down payment and commit to a monthly mortgage payment for 30 years (unless you decide to sell before then). Even so, the obligation should not be taken lightly.

Just from preparing to buy a home, you know that your credit score is an incredibly important number. It determines your eligibility for a home loan, and also plays a major role in determining your interest rate.

The higher your credit score is, the lower your interest rate will be, which can really affect your monthly payment. Hopefully, yours is in top shape when it’s time to buy. However, it’s also important to consider what happens to your credit score after you actually purchase your home.

You might be surprised to find out that buying a home has both positive and negative impacts on your credit scores. Read on to find out exactly what to expect of your credit score when you get a mortgage. We’ll also teach you how to minimize any potential damage that could occur.

How Applying for a Mortgage Affects Your Credit Score

It’s smart to shop around for interest rates from different lenders when you’re looking for a mortgage. Interest rates can vary greatly depending on the lending company and the type of mortgage loan they offer you. However, it’s essential to employ the proper strategy when comparing those offers.

That’s because each time you apply for new credit, whether it’s a mortgage, auto loan, or credit card, a credit inquiry appears on your report. Your credit score drops anywhere between five and ten points.

Unfortunately, if you have an excessive number of credit inquiries, mortgage lenders may think you’re desperate for cash and be reluctant to lend to you. The dip in your credit score reflects this potential risk.

The Benefits of Mortgage Pre-Approval on Credit

So, how can you mitigate this issue when shopping for a mortgage? First, limit the number of lenders you apply to. You can also ask for a pre-approval to find out what interest rates you’d be eligible for. The difference is that there is not a hard credit check performed. Instead, the mortgage lender only does a soft pull, which doesn’t have any effect at all.

You’ll still have to go through the formal application (and hard credit pull) once you decide on a mortgage loan. However, the preapproval process gives you the opportunity to compare offers without any type of commitment.

Multiple Credit Inquiries for the Same Type of Loan

Another way to protect your credit scores from too many inquiries is to limit your loan search to two weeks. When evaluating your credit history, credit reporting agencies realize that consumers want to shop around for different rates to get the best loan. So, if you have several of the same types of inquiries listed in a two-week span, they’ll only be counted as a single inquiry.

Mark your calendar with the first date of your loan application so you can track how long your search has lasted. This will help you keep your credit scores intact. Plus, you’ll also keep yourself on schedule for getting your mortgage in order.

The Effect of Mortgage Debt on Your Financial Profile

Your credit score could also take a hit because of the amount of mortgage debt you have, especially if this is your first time owning a home. Luckily, there is a good side and a bad side to this.

Let’s start with the negative. Since a home costs so much, your level of debt is going to skyrocket. This is true, especially if you’re a first-time homebuyer or someone who just upgraded to a more expensive home.

Think about it: Say your previous levels of debt included a small credit card balance, a student loan, and a car payment, and that came to about $65,000 in debt. If you buy a $200,000 house, you’re nearly quadrupling your level of debt.

Yes, you were approved for the home loan and can afford the monthly mortgage payments. However, that is still a significant number to be added to your credit reports, and your credit history will reflect this change. It’s not going to plummet by any means, but you will notice a decrease.

How Your Mortgage Affects Debt-to-Income Ratios

Another way your new mortgage can influence your access to credit is through your debt-to-income ratio. This isn’t part of your credit score, but it is part of how future lenders analyze your application for credit. Basically, your DTI is how much monthly debt payments you owe versus how much money you earn each month.

Rent isn’t included in your DTI, but mortgages are. So, the next time you go to apply for a car loan or refinance your mortgage, you’ll have to consider how much overall debt you pay each month compared to your pre-tax earnings.

The Positive Impact of Timely Mortgage Payments on Credit

Now let’s get into the positive effects that buying a home can have on your credit score. The first impact is that your credit mix becomes more varied.

This category actually accounts for 10% of your credit score. Therefore, having an installment loan like a mortgage helps more than just having revolving credit like a credit card. 10% may not seem like a lot, but it can help offset some damage caused by the negative side of purchasing a home.

The most important thing you can do to increase your credit score is to pay all of your bills on time. And having a mortgage is a great way to add positive history to your credit report. That’s because while most creditors report negative payments to the three major credit bureaus, many don’t actually report positive payments. So, you’re penalized for negative behavior, but sadly, not rewarded for good behavior.

Mortgage payments, on the other hand, are regularly reported to each of the three credit bureaus: Equifax, Experian, and TransUnion. And since 35% of your credit score is determined by your payment history, on-time payments each month can make a significant difference.

Strategies to Maintain a Strong Credit Score After Buying a Home

Even after you’ve purchased your home, it’s still essential to keep your credit scores in top shape. You never know when you’ll need credit again, and you’ll want to ensure you have access to the best rates. Even if you’re not planning to use new credit for a car loan or personal loan.

You may want to refinance your mortgage in a few years to get a better interest rate, cash out some equity, or take off your mortgage insurance. To do any of those things, you’ll continue to need a strong credit history. Follow these tips to ensure your credit score stays where you want it to be.

#1: Monitor your credit report annually.

You can get free copies of your credit reports each year from AnnualCreditReport.com. This is helpful in several ways. First, it allows you to check to make sure all of your personal and financial information is listed accurately.

More importantly, however, is that it allows you to detect whether someone has fraudulently opened up any type of credit account in your name. Identity theft is a growing concern. Staying on top of your credit history keeps your identity and your finances safe.

#2: Continue to make your payments on time.

It’s vital to your credit history to make timely payments. Even one 30-day late payment can stay on your credit report for years, causing a major drop in your credit score. And the consequences just get worse as the delinquency ages to 60 and 90 days.

It’s easy to get swept away by all the new excitement and responsibilities that come with a new house. Just be sure to keep up with your other financial obligations during that time.

#3: Keep your debt low.

Since you just added a large new mortgage to your credit report, it’s wise to keep your other debts as low as possible, particularly your credit card balances. Try not to exceed 30% of your available balance on any of your cards. If you do, your credit score is likely to fall. Instead, try to spread out your balances across cards while you work on paying them off.

Buying a house does indeed impact your credit score. However, the impact is not so dramatic that buying a house isn’t worth it. After all, the purpose of the credit score itself is to help prove your creditworthiness to lenders so you can borrow money when the need arises.

As long as you can afford your monthly payments, purchasing a house could very well be a wise investment. It allows you to put down roots while growing equity in your home.

Bottom Line

Purchasing a home is a significant financial milestone that can affect your credit in various ways. While it might initially lower your credit score due to inquiries and increased debt levels, it also offers an opportunity to build and improve your credit over time through regular mortgage payments.

The key is to manage your debt-to-income ratio effectively and to maintain good credit habits. This includes monitoring your credit report, keeping debt levels under control, and ensuring timely payments. By doing so, you can enjoy the benefits of homeownership while nurturing a strong financial standing.

In summary, buying a house is more than acquiring property; it’s a strategic step in building a secure financial future. With thoughtful management, the journey to homeownership can enhance your credit profile and open doors to future financial opportunities.

Source: crediful.com