Steps to Set Yourself Up for Success

Getting ready to buy a home starts long before you find the perfect property. By taking the right steps now, you can set yourself up for a smoother, more successful purchase down the road.

But why is credit important? Years ago, people saved and paid cash for big purchases. Then, loans and mortgages were developed, and with that, credit.

To take out a loan, you need credit.

Regardless of whether or not you have credit, or THINK you have credit, everyone needs to pull your credit report at www.AnnualCreditReport.com and check for discrepancies (can be done once a year per reporting agency). If you find any inaccuracies, report them to the appropriate credit bureau.

*NOTE* this will not tell you your credit score though there are many places that you can do that as well.

Here are some tips:

To establish credit:

While you can do this at any age, 18 is when you can get a credit card on your own. Things that you can to establish (…but if used wrong can hurt your credit):

• Open a bank account in your name.
• Put utility bills in your name and pay them on time.
• *SOME* rental companies or landlords can/will report on-time rental payments, but most often this goes unreported. There are ways for you to self-report, but it might be cumbersome or have a small monthly cost associated with it.
• Open a credit card (and use it responsibly)
  • A secured credit card is one that is backed with your own cash and is typically easier to qualify for.
    • *NOTE* Do NOT pay it off in full the first cycle (it needs to hit your credit). If you are disciplined, try to maintain a 10% balance.
  • Keep your limit (and balance low). It’s easy to think, “I’ll pay it off next month, I just need this extra bit now,” but that’s how things snowball.
• Take out a small personal loan (if you can); if you can’t take out a loan on your own, use a co-signer.
• If you have someone in your life that would allow you to do so, you can piggyback on their card. Essentially, they would add your name, and your credit would reflect their credit actions.
• Pros: establishes credit, can increase your score
• Cons: not all lenders will use the credit from a secondary user, if the main person on the card makes late payments, is near the limit, or has less than steller credit transactions, this will also reflect on your credit

Here are a few things you can do today to increase your credit (if you have established credit):

• Continue paying all bills on time, even if it’s just the minimum payment. If you are having a hard time, reach out to your creditors to see if they have help available.
• Avoid opening new lines of credit.
• Work toward paying cards down to 50%, then 30%, and finally 10%. Choose the card with the highest interest rate to work on first, then move onto the next.
  • For example, Card 1 has interest or 29%, Card 2 is 25%, Card 3 is 32%. Card 3 has the highest APR, so focus on that card. Pay it down to 50% of the limit, then move on to Card 1 with 29%, pay that down to 50%, then card 2. Then start over and pay down to 30%.
• Consider talking to a financial coach or using resources available at Mid Central Community Action.

Here’s a document you can print if it helps.