What to Know About Credit

There is nothing more important than your credit when it comes to buying a home. The first thing a lender will do is review your credit report. This is a history of money you have borrowed in the past and how you have repaid those debts. It contains a list of debts such as credit cards, car loans, and other loans. It shows any bills that have been referred to a collection agency. It lists other public record information such as liens or bankruptcies. And, it documents inquiries about your creditworthiness and whether you were extended credit or not. Your credit report is constantly updated and most information is deleted after 7 years (10 years for bankruptcies). This credit information then helps generate a computer-derived number that indicates your risk as a payer of debts. This is called your credit score. Your credit history and/or your credit score is used to decide whether your loan is approved and it could be used to determine your interest rate.

If You Don’t Have Credit

If you haven’t established credit, start now. Perhaps apply for a credit card or two, then use them carefully and pay them off each month. Once you’ve done this, you’ve started your credit history. Next, apply for credit on a store purchase such as an appliance, or a TV. Do this even if you have the cash to pay for it. When the first bill comes, use your cash to pay it off in total. You see, buying on credit and paying it off helps your credit better than buying something for cash.

If You Have Bad Credit

It can take awhile to improve bad credit, but it can be done. Since credit scores reflect much of your most recent activity, the first thing you should do is to start paying on time. Pay all of your bills, even if it’s just the minimum. Never pay less than what is due, and never pay late. And, don’t max out your credit cards because it indicates poor money management. One of the best things you can do is to make a budget to help with your monthly expenditures and then live by it. Also, start a savings account and make it part of your budget. You will need money for a down payment, or it will help if you lose your job or source of income.