Credit Problems for Young Buyers

Start building credit early.

Last week I had to do something that I really didn’t like. I had a young couple come to me wanting to buy their first home. They were so excited, and so was I. Until we hit a snag, and not just a little one.

They didn’t have a great credit score. That is usually something I can work with since I specialize in helping people with credit challenges get into a home with little or no money down and a good interest rate. In many cases I can offer what I call a credit rebuilder loan. If you can afford to pay a little higher interest rate for a couple of years, then this is a good option. Then the loan could be refinanced after 2-3 years when their credit scores are much better and get a much better interest rate. But in this couple’s case, their scores were too low to do that right now. So I advised them to work on cleaning up their credit and come back in 12 months.

So, that prompted me to remind everyone of the basics of building good credit. In theory, it’s not hard. But we all need reminders. Here’s what CNNMoney.com has to say about it.

Correct mistakes. You’re entitled to pull one free credit report every year and you should. If something is wrong, take the necessary steps to fix it.

Pay your bills on time . A late payment in the last few months will hurt your score badly. Make payments on time, even though it might mean you can’t make that Best Buy run for the newest CD and DVD releases.

Don’t move debt, pay it off . It doesn’t do any good to move debt around because it’s still a part of your debt to maximum balance ratio. It’s best to just pay debt off when you can.

Don’t close accounts. Closing accounts just reduces you balance to limit ratio. And you want that to be as high as possible.

If you have any questions, you can feel free to shoot me an e-mail. But the best situation is to have your credit in good shape when you’re ready to buy a home, so get started early.