Every successful homeowner had to put some effort into getting and maintaining good credit before they were eligible for a mortgage. If you're having trouble getting qualified, here are some tips for successfully acquiring good credit.
The most obvious way to get credit is to obtain a credit card and then use it regularly and responsibly. If you have been unable to get your first credit card, ask around and see what cards your friends hold. Maybe you've just applied to the wrong companies, and someone else out there will be willing to offer you credit. Department store cards are often easier to obtain than major credit cards, but will build your credit just the same. The key is to use the card regularly, so getting a card from somewhere you normally shop frequently is best. Once you have a track record of using a card and paying your bills on time, credit card applications should start showing up in your mail.
Another way to get credit is to obtain a small loan. If you have ever had a student loan and made payments on it, this will also boost your credit rating. Another easy way to do this is to have a business finance a purchase for you.This is quite common for things like furniture and vehicles, and works similar to how a department store card would work. For little or no money down, you obtain an item and agree to pay a certain amount monthly until the item, and interest, is paid off.
The key to making any of these systems work is making your payments on time. Late payments give you bad credit. In fact, if your credit balance (the amount you still owe) is more than 4% of your credit allowance, then you will not be in good standing credit-wise. It is important to at least make your minimum payments, if not work to pay your cards off as soon as possible. The safest way to build good credit is to use a credit card for regular purchases, such as groceries or to pay your bills, and then pay it off in its entirety at the end of the month. Although it's tempting to buy yourself a few treats once you get a bit of credit, that can be a downward spiral unless you are sure your income will cover the payments.
This brings me to another point, which is when someone already has bad credit. The best thing to do is to work harder to pay off those bills. If you have to file for bankruptcy, you will have a penalty period during which you cannot obtain credit. Bankruptcy is a serious matter, so please do not consider it lightly. If you don't yet have bad credit, by all means, use your credit cards wisely. They are a valuable tool, but used irresponsibly they can have devastating effects.
There is a way for people with little or no credit, or an unstable employment history, to obtain a mortgage, and this is by getting a co-signer. A co-signer is a friend or family member who signs the loan with you, agreeing to take responsibility for payments should you default on your payments. Obviously, the decision to become a co-signer is not a casual one, and usually it is only very close family that are willing to take this risk.
So good luck acquiring credit. It isn't hard, but it takes diligence. Knowing it will help you make the biggest investment of your life, a home, will make it all worth while.
Joshua Sloan, experienced San Diego real estate agent. Visit his site for help finding new homes in San Diego.
Tags: mail, credit cards, furniture, money down, mortgage, groceries, credit rating, late payments, minimum payments, bad credit, credit card applications, student loan, department store cards, time credit card, business finance, credit balance