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Establishing Good Credit

by Melissa Thompson


Having a good credit report is important for all your financial goals, but it is essential when you are applying for a mortgage loan.  Your credit history plays a significant factor in gaining approval for a mortgage. 

Your credit score is your credit history summed up into a single number - your  FICO Credit Score.  With this score, lenders can determine if you qualify for credit when you are applying for a credit card or loan.  It is calculated using five different components:

  1. Payment history - 35%
  2. Credit Utilization - 30%
  3. Length of credit history - 15%
  4. New credit - 10%
  5. Credit Mix - 10%

While waited differently, each of these components matter when determining your credit score, so none should be overlooked when building and maintaining your credit history.

Good credit matters because buying a house is one of the largest financial investments you will make, and you must be financially prepared to take on the expense of a mortgage.  Without a strong credit score, a lender may decide that you are not ready to take on the financial responsibility of owning a home. The higher your credit score, the better the chances are that you will be approved for a mortgage loan.

Building good credit takes time.  It’s something you should start working on as soon as you enter adulthood.  As a young adult you may think that buying a house is a long way off, but it is never too early to start establishing good credit. And even if you have a not so good credit report you can work on strengthening it.  Not sure where to begin?  Here are five ways to start building a strong credit history:

  1. APPLY FOR A SECURED CREDIT CARD - If you are just starting out you may need to apply for a Secured Credit Card.  This is a card that is backed by a cash deposit.  The deposit amount will be the same as your credit limit. You use this card like any other credit card; make purchases and make payments on or before the due date each month.  You will incur interest if you don’t pay your balance in full and your cash deposit will be used as collateral if you fail to make payments. Secured credit cards are not meant to be used long-term.  The purpose of having one is to help qualify you for a card that does not require a deposit to secure it.  When you close your secured credit card account, you will receive your deposit back.
     
  2. ASK SOMEONE TO CO-SIGN A LOAN FOR YOU - You may be able to secure a loan or unsecured credit card using a co-signer.  Just be sure the co-signer understands that he or she will be responsible for the full amount of the loan (or credit) if you are unable to pay. How to Get a Personal Loan with a Co-Signer
     
  3. DON’T MISS OR BE LATE MAKING PAYMENTS - As seen above, your payment history makes up 35% of your credit score.  Financial responsibility is a large factor of your overall credit history and can make or break your ability to obtain new lines of credit, such as a mortgage loan.  Always pay your bills before or by your due date.  Late or missed payments can seriously harm your credit score.
     
  4. TRY TO PAY MORE THAN THE MINIMUM DUE - While the minimum due is all that you are required to pay each month, it will serve you well to make larger payments to show your creditworthiness. At the same time, you will be reducing your debt at a faster pace and paying less interest over time.
     
  5. DON’T OPEN A LOT OF ACCOUNTS AT THE SAME TIME - New account lower your average account age, which could lower your credit score.  The longer you have accounts open and active, the better off you are (as long as you are making payments on time).

By establishing strong credit early, you will be well on your way to acquiring a mortgage loan when you are ready to buy a home!

If you are in the market to buy or sell a home in the Memphis area, contact professional Realtor, Melissa Thompson, and let her help you with all your real estate needs. Give her a call at 901-729-9526 today!

Home Buyer “To Do” List

by Melissa Thompson

If you are thinking about purchasing a home, there are several things you should do before you even start your home search.  While it’s exciting to look at properties and imagine what your life will be like in a new house, you might be setting yourself up for disappointment and heartbreak if you aren’t prepared for all the steps involved in the home-buying process.  So, do your homework and make sure you are truly ready to find the home of your dreams!

  1. Determine What You Can Afford - You don’t want to find the perfect property and then find out it’s out of reach for you.   Determine how much you can afford for a mortgage payment and create a maximum budget for what you are willing to pay for a house. Your mortgage payment should take up no more than 28% of your income.  If you are currently paying rent or a mortgage payment that is less than what you anticipate for your future home, start saving the difference each month to make sure you are willing and able to live on that.  You don’t want to be house poor.  Home Affordability Calculator
     
  2. Check Your Credit - You can request free credit reports from Annual Credit Report .com.  Check the reports thoroughly for any errors or negative information.  Take the steps needed to improve your credit score.  A higher credit score will possibly qualify you for lower interest rates, which will make your purchase more affordable.
     
  3. Meet with a Lender - Getting pre-approved for a mortgage is vital to the home-buying process, especially in a seller’s market where there might be bidding wars.  Sellers are more likely to choose a potential buyer who has already been pre-approved over one who hasn’t.  It will also help you identify the documents you will need for the final loan application. 
     
  4. Save For a Down Payment- Your meeting with the loan officer will also help you determine how much cash you will need for a down payment.
     
  5. Get Organized - Gather documents you will need for your final loan application and start a house-hunting binder.  As you start looking at homes, you can add any materials you collect along the way.
     
  6. Start Considering Where You Want to Live - If you don’t already have a specific neighborhood in mind, start investigating different areas within your price range.  Visit neighborhoods at different times to get a feel for what it might be like to live there.  Consider things like what your work commute will be and what amenities you want.
     
  7. Take a Home Buyer Education Course - If you are a first-time home buyer, these classes can help you prepare for the responsibilities of being a home owner.
     
  8. Find a Realtor - Choose an experienced real estate professional like Melissa Thompson to represent your interests.

Taking these steps before you start your home-search will make the whole home-buying process easier!  Call Melissa Thompson at (901) 729-9526 and let her guide you through the home buying process today!

Photo Credit: mentalfloss.com

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Melissa Thompson
Crye-Leike Realtors
6525 N Quail Hollow Road
Memphis TN 38120
(901) 729-9526
(901) 756-8900
Fax: (901) 435-0620