Monday, March 23, 2009

The First Steps Series-Establishing Good Credit-Part 1

So you're thinking about buying a home? Well one of the most important factors you should be thinking about is your credit. The first step in the homebuying process is understanding your credit.
When you apply for a mortgage, lenders will review your credit report. Your credit report is a history of how you've managed your finances: it's a record of money you've borrowed, your history of paying it back, and how much open credit is available to you.
Your credit report follows you wherever you go and will have a big influence on whether or not you can get a mortgage, the terms of that loan, and the interest rate. If you have good credit, you may have a much wider range of mortgage options with lower rates.

So how do you better understand credit?

Be aware of how important your credit history is to the process.
  1. Building good credit is not difficult, but it does require time and patience. Here are some tips to follow:
    Pay your bills on time. Credit Scores emphasize your most recent payment record. Paying on time raises your credit score. If you've been late, start paying on time!
    Pay at least the minimum amount required. If you can pay more do so- it's a good idea if you can afford to. But you should never pay less than the minimum.
    Keep your credit card balances low. "Maxing out" your credit cards can lower your credit score.
    Don't apply for too many loans or new accounts. Applying for a lot of credit in a short period of time may concern lenders that you won't manage your debt well. Only apply for credit when you need it.
    Keep your debt-to-income ratio at 20%. Generally, you should not have debt that's more than 20% of your net monthly income.
    Establish credit if you don't have any. Open a free or low-cost checking or savings account and make regular deposits. Only write checks when you have money to pay for things. And apply for one or two credit cards, use them carefully, and pay them off each month.

Next time we'll talk about Credit Scores and Credit Reports!

Happy House Hunting!!

No comments:

Post a Comment