Having a high credit score is important all the time, whether you are buying a home anytime soon or not. Your FICO score and credit report are so vital to getting any type of loan, and this series will give you the financial strategies you need to get your credit score as high as possible.
If one of your goals is not to use a credit card, I get it, BUT, If you CAN be responsible and pay your credit card off monthly, this is a great tool to utilize.
Seems counterintuitive, but it’s true. Most people may not realize that having, and using, a credit card actually helps your credit score and your ability to acquire a loan to purchase real estate.
How’s that you might ask?
Because in order to qualify for any type of loan, a mortgage included, you need to have established “credit history” … and you can’t do that without a credit card. Credit cards are essential in helping you establish a credit history, even more so than a car or school loan.
Mortgage lenders and the bureaus who determine your credit score want to see how well you “borrow credit” and handle monthly payments. They use this “history” to evaluate you and the risk associated with loaning you a substantial amount of money. They will use your credit score to offer you different interest rates, and ultimately, determine if they are willing to take you on as a buyer.
Don’t rush to take a out a bunch of additional credit. There are numerous factors that contribute to your score and it can take at least 6 months to build or improve your credit, so start planning well before you want to take out a loan.
Let’s go over more details and take you through some important steps:
First thing’s first, if you don’t have a credit card, get one and use it for at least 6 months, paying off the statement balance every month. Doing this will increase your credit score.
Your credit utilization will be measured by comparing your total outstanding balance against your total available credit. This ratio accounts for a third of your credit score!
Here are some key tips:
- Try to have low balances as you build your credit. Please don’t carry a balance. If you absolutely must, try to keep your balances below 30% of your available credit. That helps your score.
- Develop a strategy of purchases and payments with your credit card(s) that will work with your budget. Do this for the next 6 months or so. You want to pay your bills on time and if possible pay off your balances each month. Sixty-five percent of your FICO score is your payment history. New accounts will take some time, of course.
- Open another card to increase your line of credit, and thus improving your debt-to-income ratio. But don’t go overboard and open up too many. Take it slow and be methodical so you don’t ruin your credit when you’re just starting out.
- Department store cards can become a dangerous habit so again, if this is the credit you’ve chosen utilize, stick to a couple of stores that you use regularly and can pay off each month. It seems that every salesperson at checkout will ask if you want to get a card and save on your purchase that day. Say “No.” Saving 5, 10, or 15% really isn’t worth it unless you are intentional and responsible enough to pay your balance off each much. Don’t be swayed each time or you’ll end up with 10 cards with high interest.
Having a strategic plan to build credit to become a homeowner is a great way to develop good credit habits. You can become the type of dependable customer that lenders love … you know how to responsibly “borrow” money and make payments. When you apply for a home mortgage, lenders will see your excellent credit history that will ultimately make the loan process go much smoother.
Ready to connect with a lender? Contact me for resources on the best lenders licensed in Georgia that can help us make a competitive offer in the still HOT Peachtree City, Newnan, Sharpsburg, Senoia, Brooks, and Fayetteville real estate markets.
I'm Morgan and I love helping professionals in the aviation industry make their move to Atlanta as smooth as a greased landing. Whether its relocation, buying for the first time, or selling luxury and aviation real estate properties, I can help you transition smoothly.
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Sharpsburg, GA 30265
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