Building Credit | Monday Minute

So you have decided to purchase a home.  Saved up cash for a down payment, selected an amazing realtor to help you through the transaction, but there is one other thing you will need if you are getting a home mortgage: Credit.  This one factor affects not only your viability as a home buyer, but also affects your potential spending power, the amount of downpayment required, and your overall interest rate.  And when it comes to credit, not all scores are equal.  Although you can get a loan with a score as low as 580, being up in the 700’s will open up more options and get you the best terms on your mortgage.If you don’t already have credit, then you will want to start building it.  Ultimately, creditors are looking to see that you are good with money, in that you are paying back what you borrowed.  So before you get a loan for a few hundred thousand dollars, you can do a few things to start building up that score:

1. Get a credit card.  Use it each month for things you already buy, like food and gas, and pay it off each month.

2. If you are having a hard time qualifying for your first card, look into becoming an authorized user on someone else’s card, possibly a family member.  

Over time, you will start building credit so that you can open up your own card.

1. Obtain a different type of loan like an auto loan or talk to your local bank about a credit builder loan or even a secured credit card.

If you currently have credit, but you need to get your score back up, here are a few things you can start doing:

1. Pay down your credit balances.  The less of a balance that you carry will help increase your score and that larger balance owed makes up a substantial portion of what the credit bureaus calculate credit scores from. 

2. Negotiate to reduce debts owed.  Oftentimes, depending on what you owe, you may be able to negotiate a smaller payoff to remove debts off your credit.

3. Request a credit limit increase.  If you are constantly hitting the credit limit, then raising your total limit will help increase your credit available and ultimately will help your score.

4. Set up autopay.  The largest factor affecting your score is payment history, so setting up autopay or reminders to pay your bills on time will make a huge difference in increasing your score.

5. Report any errors.  When working on your credit score, its good to know where you stand credit-wise.  And taking a look at the report could show accounts that should have already been paid off, or possibly incorrect balances or fraudulent accounts.

One thing that should be noted here is that building or fixing your credit does not happen overnight.  Depending on your situation, This process can take time, even as long as 6-12 months.  So if you are thinking about buying a home and you don’t have credit or have low credit, there’s no better time than the present to start working on it.If you have any questions about the buying process, give us a call today.  We look forward to hearing from you!