Wonder if you’re credit worthy?
As you know, buying a home means you’re going to need to get a mortgage. (Unless, of course, you recently won a major lottery and you’re planning to pay cash for your new home. If that’s the case, please call!).
Getting a mortgage means a possibly painful scrutiny of your finances, your credit history, your monthly debt, your income, etc. If you have already owned a home for some time, we hope you’ve been able to keep up with the mortgage payment every month. If so, you’re building your credit up nicely: good for you.
But because many of our clients are first-time homeowners, one of the most common questions we get is something like this. Hey, I haven’t had a chance to develop much credit yet. I’ve been in school, I’ve graduated, and I have found my first job. But I do not yet have a credit history. Can I still qualify for a mortgage? The answer is yes, in a few months–with some steps you must take.
Your objective should be to increase your credit worthiness over the next six to nine months. After all, your “credit score” is simply a way to rate your credit worthiness. How do you increase your credit score, especially if you don’t have much credit extended to you at this point?
Go obtain a couple of credit cards with modest balances. For instance, apply for a gasoline credit card. (You will see them advertised at many pumps, often with the incentive of knocking a few cents off the price at the pump for some months). Apply for a credit card at a home improvement store (like Home Depot or Lowes, or even Sears). It probably won’t be a large amount of credit, but it will still help to demonstrate that you pay your bills on time. A third option might be to get a credit card from a small, local clothing store.
Don’t apply for all three cards at once. First get the gasoline card, and when you fill up your tank, use the card. (Be sure to pay it off when the bill comes in). A few months later, apply for the home improvement store card. Buy an item that costs somewhere between $200 and $400 that you actually need (maybe a lawn mower, a microwave, or a drill set). Plan ahead, and pay it off completely when the bill comes in: do NOT pay merely the minimum payment. And then a few months later, get a local clothing store card and charge up maybe a couple of hundred dollars of clothes (Christmas presents for your favorite people, maybe?). You know the next bit of advice already: pay it off completely when the bill comes in…
If you’re following these instructions to the letter, your credit score will have improved in the six or nine months that have elapsed. Don’t go all nutty and buy up half the clothing store, including new $200 sneakers. Take it slowly. You can also demonstrate evidence of your credit worthiness by showing regularly-paid electric or cable bills, regular payments on your student loans, etc. After your credit score reaches the high 600s or the 700s, it’s likely you will be able to obtain a mortgage. If you’ve got questions, just let me know. Your future’s so bright, you gotta wear shades!