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 for things. Apply for one or two credit cards, use them carefully and pay them off each month prior to having any interest charges. Use pay, use pay, use pay is the way to establish a history.
Keep your credit card balances low.
Don’t “max out” your credit cards – that can lower your credit score. Ask for limit increases instead of exceeding 35% of the limit in charges.
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! A late payment of 30 days or more will show on your history for a long time so best to avoid that.
Think of your credit as a personal asset.
If you own a car or anything else of value, you protect it. Your credit is the same. It is one of your most important aspect toward homeownership and any large purchase.
Many people don’t understand credit; and, therefore don’t give it the attention it deserves. Don’t be intimidated – it only takes a small amount of time to learn what you need to know to make smart choices and protect yourself.
Your credit score is only one factor in the credit decision. Mortgage lenders also look at your credit history in your credit report, employment history, income, debt-to-income ratio, employment stability, savings, and the value of the home you want to buy.
How scores are determined
According to FICO, they weigh different aspects of credit differently:
35% - punctuality of past payments later than 30 days past due
30% - the amount of revolving debt, expressed as the ratio vs. total available revolving
credit (credit limits)
15% - length of credit history
10% - new credit of any sort are scored as more risky regardless of prompt payments
10% - types of credit used (installment, revolving, consumer finance) |
