Two Simple Ways to Boost Your Credit Score Before Applying for a Mortgage

About a month ago, I cautioned readers to avoid swiping the credit card before applying for a mortgage.

In short, the more you charge, the higher your outstanding balances. And the higher your balances, the lower your available credit and credit score will be.

That’s pretty straightforward stuff, but it may not apply to everyone because some folks may want a higher credit score despite making very few credit purchases.

However, there’s yet another way to give your credit scores a boost without simply doing nothing.

Increase Your Credit Limits

I’m talking about increasing credit card limits, something that is very easy (and fast) to accomplish thanks to the many credit card management tools now at our fingertips.

If you visit just about any credit card issuer’s website, you should be able to find an area to increase your credit limit online.

Put simply, you enter the desired amount you’d like (e.g. $10,000 if your current limit is $5,000) or you simply ask for an increase and get what you get and don’t get upset.

When it comes to credit card issuer Discover, you simply enter your gross annual income, employer name, and monthly housing/rent payment. Then they present you with your new credit line. It can take as little as a few seconds to get your new line of credit.

With other issuers, such as American Express, you are asked to enter your desired credit limit and then hope they extend it to you. Apparently you can get 3x your starting limit with little trouble.

So if you started with $5,000, you could get it increased to $15,000 simply by visiting the American Express website and filling out an online form.

The underlying goal of such moves is to lower your credit utilization, which is the percentage of credit you’re actively using at any given time.

A lower utilization, similar to a lower debt-to-income ratio, is viewed favorably.

So imagine you have that American Express credit card with a $5,000 limit.

If you currently have a $2,500 balance, even if it’ll be paid off on time and not revolved, you’re essentially using 50% of your available credit. This isn’t a good thing when it comes to credit.

You may actually want to keep your utilization below 25%, in this case, no more than $1,250, again, even if you pay it off in full by the due date.

But what if you naturally charge a lot on your credit cards each month, despite paying all of them off every month? What can you do to keep utilization low?

Well, if your credit limit happened to be $10,000 instead of $5,000, that $2,500 balance would only represent 25% utilization.

In other words, all you have to do is ask for higher credit limits, instead of spending less. Of course, spending less will sweeten the deal and ideally push your credit score even higher.

Tip: It’s easier to get credit limit increases approved if your balances are low because you’re viewed as a lower risk customer.

Pay Off Your Existing Balances

In conjunction with this tip, you can pay down any balances you may have, assuming you don’t pay your credit cards in full each month.

If implemented together, you can get higher limits and reduce balances, which will be a one-two punch in the credit utilization department.

So using our same example, if the person with the $2,500 balance lets it float from month to month and only has a $5,000 credit limit, imagine if they got a higher limit and started paying it down.

They could push their utilization down from 50% to say 15% if they got the limit increased to $10,000 and paid $1,000 off the balance.

These actions should result in a higher credit score, which generally means a better mortgage rate if you apply for a home loan.

Additionally, smaller credit card balances mean you’ll have more of your income available to use toward a mortgage payment. So you may actually be able to qualify for a larger mortgage and/or buy more house.

The only caveat here is that a credit limit increase request could result in a hard inquiry on your credit report, which could ding your credit slightly. It’s temporary, but could offset some of the expected gains of a higher limit.

So either request the higher limits several months in advance of applying for a mortgage, or ask the credit card issuer if it will result in a hard or soft pull before making the request. If it’s the latter, it won’t harm your credit score.

In any case, you’ll want to approach mortgage lenders with the highest credit score possible to ensure you have the best chance of approval and obtain the lowest interest rate.

source: thetruthaboutmortgage.com

How to Pay the Mortgage with a Credit Card for Free and Make Money Doing It

Back during the housing boom aka meltdown there were services that allowed homeowners to make their mortgage payments with a credit card.

These services charged fees for the convenience, and looking back, they were probably only offered because people couldn’t keep up with their mortgage payments.

Unsurprisingly, these services seemed to disappear as quickly as they surfaced, but there are still options to pay the mortgage with a credit card each month free of charge.

The difference today is that this method/idea is more about earning credit card points (or cash back) for paying your hefty mortgage payment, not so much about simply paying it.


Let me preface this by saying it makes no sense to pay your mortgage with a credit card if you can’t afford to pay it otherwise.

The only purpose of this method is to earn points and/or cash back as you would on other purchases made with a rewards credit card.

You Can Pay Your Mortgage with American Express Serve


Perhaps the easiest method I know of involves American Express Serve, which is referred to as a reloadable prepaid account.

In reality, it basically works like an online bank account in that you can transfer/load money to it and then pay everyday bills or make purchases with the associated prepaid card.

Let’s focus on that paying bills part. Your mortgage is a bill and it must be paid each month until maturity, just like other recurring bills.

But loan servicers don’t give homeowners the option to pay with a credit card (for good reason!) unlike most other bills.

The Serve method entails loading the account with a credit card, and then using the funds to pay your mortgage. I suppose you can use a debit card as well if it earns rewards.

The purpose of this is to get rewards on that large amount of money spent, so if the credit/debit card doesn’t earn rewards, there’s no point in doing this.

And you need to pay off your credit card in full each month to avoid any interest or fees to offset the benefit of doing it to begin with.

A couple warnings/issues with this method:

– You need to make sure your credit card issuer doesn’t charge fees to load Serve (American Express warns of this possibility on the website)
– The max you can load with a credit or debit card each month is $1,000 ($200 per day)
– The limit increases to $1,500 a month ($500 daily) if you get Serve with Softcard, formerly known as Isis Wallet
– You actually need to pay off the credit card charges to avoid interest/fees

As noted above, you can load your Serve account with a credit card, but even American Express warns that you could be charged fees by your card issuer for doing so.

I’ve used a Chase credit card and there was no fee or issue. It just showed up as a standard purchase.

But to avoid any mishaps, testing with a small amount or asking your credit card issuer to lower your cash advance limit to zero (or as low as possible) might be a good idea before giving it a whirl.

Once the necessary funds are in the Serve account, you’ll be able to see your available balance. Assuming it’s sufficient to cover your full mortgage payment, you simply select “Pay Bills” from the dropdown menu then add a payee.

While certain payees are already in Serve’s system, you’ll likely need to add your loan servicer manually, including their address and your loan number.

It should be the address where you would send a paper check because Serve is basically cutting a physical check on your behalf. It’s essentially a bill pay service. This is exactly why it works.

You’re not actually paying your mortgage with a credit card – rather, you’re funding an account with a credit card then sending those funds to your servicer via check, a much more accepted form of payment.

Once you save the payee information, you can make your mortgage payment via Serve each month. There’s even a memo section where you can write your loan number and any other details to ensure the payment is processed properly.

Note that payments can take several business days to process, so it’s not as quick as making a payment online. Fortunately, mortgage due dates are fairly flexible. But you’ll want to give yourself a cushion to avoid paying late if anything goes wrong.

The Downside to This (or Any) Method


While it’s kind of cool to pay your mortgage with a credit card, it does require some work, as noted above. And if you have a jumbo mortgage payment, this method probably won’t work very well given the low funding limits.

You certainly won’t want to send partial payments and find out that your loan servicer paid down your principal or simply returned your check.

Sure, you can load money from a credit card and bring in the shortfall from a checking or debit card, but at that point it might not be worth your time and energy.

After all, how much will you really “earn” from using a credit card. If your monthly mortgage payment is $1,000 a month, this method should work out okay.

But that would only equate to 12,000 points or miles annually, which is worth maybe $120 or slightly more if redeemed for travel or something more lucrative.

The earnings could also be used to pay down your mortgage a little bit faster if you put it toward the principal balance.

In that sense, it could be worth it. Just be careful not to miss a mortgage payment in the process.

source:  thetruthaboutmortgage.com

How I Got $435 Cash Back Last Year Just for Buying my Regular Groceries

2012 concluded my first full year using the Blue Cash Preferred® Card from American Express as my primary card of choice for groceries (by far, the biggest expense category I charge by credit card).

So I wanted to share the results on whether my quest for 6% cash back on groceries paid off (or didn’t).

Prior to using this card, I was using the TrueEarnings® Card from Costco & American Express. Nice card, but it only offers 1% cash back on supermarket purchases.

Realizing that around 60% of my typical credit card purchases were at supermarkets, I went on the hunt for a card that could offer more cash back in that category. What’s sweeter for a frugal rewards card hacker than extra cash back on common grocery purchases that you were going to make anyways? (a man’s gotta eat!)

At the conclusion of my search, two cards jumped out as being far superior to any others on the market in this category (and they just so happen to be closely related):

1. The aforementioned Blue Cash Preferred.
2. The Blue Cash Preferred’s sister card, Blue Cash Everyday® Card from American Express.

Amex Blue Preferred vs. Everyday Benefits

What’s the difference between the two cards? (highlighted in bold below)

Blue Preferred offers:

• The first $6,000 of purchases at U.S. stand-alone supermarkets in a calendar year qualifies for 6% cash back; 1% thereafter
• 3% cash back on gasoline at U.S. stand-alone gas stations and select major department stores
• 1% cash back on other purchases
  
• Earn $150 reward dollars after you make $1,000 in purchases in the first three months of card-membership
• $75 annual fee

Blue Everyday offers:

• The first $6,000 of purchases at U.S. stand-alone supermarkets in a calendar year qualifies for 3% cash back; 1% thereafter
• 2% cash back on gasoline at U.S. stand-alone gas stations and select major department stores
• 1% cash back on other purchases
• Earn $100 reward dollars after you make $1,000 in purchases in the first three months of card-membership
• No annual fee

The 1% difference on gas stations and department stores was not a big differentiator, nor was the $150 vs. $100 sign-on bonus. The 6% vs. 3% on supermarkets was. As was the $75 annual fee.

I have never paid for a credit card with an annual fee and always held a negative view towards those with an annual fee (who likes certain credit card fees?). However, after crunching the numbers, I determined the Blue Preferred would deliver a better overall return, even with the $75 annual fee. Would these #’s play out in reality?

Blue Preferred Cash Back After 1-Year

Crunching numbers is one thing. But how would the cards play out in real life?

Here’s a screenshot of my rewards earnings over the year:





You can see my earnings had a huge jump from Jan to Feb., as I received my $150 reward bonus (and redeemed it as a statement credit). Then, they steadily increased between $35-$45 per month each month, as I purchased groceries each week.

For more granularity, I live in a 2-person home (my wife and I) and we buy our groceries at Trader Joes, Whole Foods, Meijer (includes all toiletries, over-the-counter medicine, pet supplies), Kroger (for a rare unscheduled run), and Costco. We also eat at home 99% of the time. Dining out expenses probably average $25/month.

My total “groceries” (supermarket) category expenses in my year end review, according to AmEx, was $6,446.87. How common is this? According to the U.S. Bureau of Labor Statistics, the average American spent $3,624 on groceries over the course of a year. A couple would average approximately twice that, or $7,248.

This means that I just passed the $6,000, 6% cap and received the full $360 cash back for the “stand-alone supermarket” category (and 1%, or $4.46 on the remaining $446.87 in spend for that category).

Note that each retailer you purchase from has a classification code that determines what category it falls in to. What retailer purchases fell in to Amex’s “groceries” category for me? Trader Joes, Whole Foods, Meijer, and Kroger.

The lone exception was Costco, which fell in to the “wholesale stores” category, and I only received 1% cash back on (btw, yes, you can use this card at Costco and are not limited to only using the Costco AmEx, which also delivers 1% cash back on Costco purchases).

Blue Preferred vs. Everyday Results

What happens when comparing the two cards (and a typical no-annual-fee 1% cash back card like Discover It) when looking at the first $6,000 in grocery expenses?

Blue Preferred:

• year 1: $360 cash back + $150 bonus – $75 annual fee = $435
• subsequent years: $360 cash back – $75 annual fee = $285

If you have similar grocery expenses or more

Blue Everyday:

• year 1: $180 cash back + $100 bonus = $280
• subsequent years: $180 cash back = $180

1% Cash Back card:

• year 1: $60 cash back = $60
• subsequent years: $60 cash back = $60

This calculation doesn’t include the additional 3% cash back benefits in the gas and department store categories that you get with Blue Preferred, which make the card even more beneficial.
If you haven’t already, you may want to re-think that anti-annual fee sentiment!

Final Thoughts:

The Blue Cash Preferred Card comfortably surpasses the Blue Cash Everyday card and 1% cards on supermarket purchases in net cash back for most users, despite the $75 annual fee. For me, it brought an additional $375 cash back in year 1 and will bring $225 each subsequent year. Just for buying the groceries I was already buying! Your mileage may vary, of course, depending on where you shop and how much you spend annually.

If you have a large family, it might actually pay off to use both, hitting the Blue Preferred 6% cap, then moving on to the Blue Everyday.

As always, pay off your monthly statements in full and don’t use your card just for rewards benefits, that’s just silly.

source: 20somethingfinance.com