Credit: Who Needs It? Why is it Important? How do you Establish it?

By
Mortgage and Lending with NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 IL Lic 031.0006220/WI

 

 

Credit:
Who Needs It?  Why is it Important?
How do you Establish it?



     I've been receiving more and more inquiries from young potential Home Buyers as of late.  That's reason for celebration, as I believe now is a great time to enter the housing market.  With home prices still affordable and interest rates so low, there truly is a golden opportunity for young Buyers.

Link to FREE mortgage/credit consultation with Gene Mundt, Mortgage Lender

     But with the growing number of young Buyers, I am also seeing a larger number of hopeful clients with what is deemed as  insufficient credit "histories".  That can mean several things, but typically the result is lower credit scores  or no credit scores for these hopeful clients.  

     I also see this issue arise with individuals coming out of  Bankruptcy, or for those that always pay cash for their purchases.

     The bottomline is, if there are no open accounts of any kind for credit cards, installment loans, personal loans, or student loans, the  Credit Scoring System  has no way to judge their credit "worthiness".  They simply have no spending or payment history on which to base a credit score.

    So how do we proceed with a potential Home Buyer, should this be the case?

     Establishing credit is not a difficult process.  In this day and age, credit is also vitally important, as credit runs our lives ... or at minimum, affects it greatly.  Below are a few tips and clues I supply my hopeful  Home Buyers  when they wish to establish credit and a credit history:

     *  Open up a credit card (known as  revolving debt) with a modest borrowing limit.  Major retailers and gasoline companies are two good examples of this type of debt.

     *  Use the newly-established credit card by charging purchases within your budget constraints.  Pay the balance on time and in full each month.

       Note:  I recommend that first-time credit users open only one or two credit lines to begin with.  Take small steps.  Learn to handle your credit wisely.  Crawl before you walk.

     If you do not pay off the balance in full each month, keep your credit card balance(s) below 50% of the credit limit.  (This is better for your credit.  Likewise, balances kept below 30% and 10% of the limit, raise the scores even more.)

     *  Never close out old accounts, should you have them.  Keep them open, even if you do not plan on using them.  Remember, the longer you have had a credit profile or the longer the credit history, the better the scoring impact will be. 

     Consider using a  co-signer  to establish a credit account.  Lenders consider the co-signer's credit as existing credit.  (Note:  Co-signing is not without risk, so consider this action carefully.)  

     *  Always make sure prior to taking out new credit or initiating a new credit card, that the company utilized reports to the  Credit Bureaus.

     Should you be someone that suffered through a Bankruptcy or  Foreclosure ... or had other credit issues, you might have been turned down for credit or credit cards.  In those cases, try opening a "secured" account with a credit union or credit card company.  A  "secured" account  is one where you deposit cash ($250, $500, $1,000) with the credit company, as collateral for a credit card.  

     Use the card as you would any other ... paying it off in its entirety each month.  This creates a "timely payment history" and lays the groundwork to build credit scores.

Link to FREE mortgage/credit consultation with Gene Mundt, Mortgage Lender

     If in doubt as to how to proceed in establishing or restoring your credit,  contact me  prior to taking action.  And as always, whether just beginning your pursuit of good credit and credit scores or as part of your ongoing efforts, monitor your credit and credit scores, either by visiting  www.annualcreditreport.com  to receive your one FREE credit report per year (they report credit, but not credit scores) ... or again, by  contacting me.  We'll work together to establish ... repair and improve ... and monitor your credit safely and wisely.  


     *  Hoping to establish good credit?  Dreaming of Buying a Home in  Will County  or elsewhere in Chicagoland?  Contact me  today!  I'll put my 35+ years of mortgage experience and expertise to work on your behalf.
     I can be conveniently found at any of the following: 

Direct:  815.524.2280
Cell:  708.921.6331
eFax:  815.524.2281   Skype:  630.219.1316
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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

                                 IL Lic. #031.0006220  -  WI License #216987                                                                                                    

NMLS #175656

 

Gene Mundt, Mortgage Originator,  40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking:  #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including:  The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of Chicago, #Cook County, and elsewhere within IL and Wisconsin. 

 

Your Referrals & Testimonials are Always Greatly Appreciated! 

 

 

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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. Ellie McIntire 01/21/2013 09:55 PM
  2. Bridget "Mortgage Mama" McGee 01/22/2013 04:42 AM
  3. Martha Brown 01/22/2013 06:02 AM
  4. Fred Griffin Tallahassee Real Estate 02/19/2013 12:38 PM
Topic:
Lending / Financial
Location:
Illinois Will County Joliet
Groups:
Realtors®
Mortgages
1st Time Buyers
Local Expert
Bananatude
Tags:
credit repair
credit
buying a home
credit scores
firsttime buyers
establishing credit
credit bureaus

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Show All Comments
Rainmaker
845,505
David Popoff
DMK Real Estate - Darien, CT
Realtor®,SRS, Green ~ Fairfield County, Ct

Gene, great tips. 

 Insurance companies are now using credit reports to help determine premiums.

for more read

http://activerain.com/blogsview/3586214/national-home-insurance-ratings-

 

 
Jan 21, 2013 10:07 PM #11
Ambassador
768,033
Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

Gene I have know about the effects of closing accounts for a while now.  But in an effort to reduce debt, I just recently paid off and closed some revolving accounts.  I closed them so that (1)  I wouldn't be tempted to use them (2) to keep my focus on reducing or eliminating debt.  

What advice do you have for those of us that close accounts to avoid temptation?

Jan 21, 2013 10:07 PM #12
Ambassador
533,740
Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life

Gene - I still wish they would teach more of this stuff in school.  To my knowledge, they still really don't.  If this mortgage thing doesn't work out, I believe you would be one heck of an instrutor ;)

Jan 21, 2013 10:45 PM #13
Rainmaker
2,502,912
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Relevant data and appropriate too...I predict a steady run for the first time buyer all year long and I have hopes of seeing the trade-up market show its head at some point too...good post Gene and thank you

Jan 21, 2013 10:55 PM #14
Rainmaker
1,245,008
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Pat and Steve:  Good advice given.  More specific suggestions and guidelines can be offered that way, which will prove more helpful to the client and get them in a position to buy much more quickly.

Cameron:  I understand what you're saying ... but utilized correctly, in this day and age it can prove to be very help to have some credit and credit history.  Everything in moderation and education on its usage is key ...

Joe:  Thank you.  Baby steps ... learn to use it wisely with one or two accounts first.  Then move on ...

Scott:  Good point ... and one that I shared over and over with my own kids.  All the hard work of building it up can be destroyed all too quickly ...

Gita:  Thank you.  I hope many find it beneficial ...

Marc:  It happens ... and typically very young hopeful buyers ... or those pretty much starting over after a credit disaster.  But you're right, the opposite is true in too many cases ...

Ed & Tracy:  Thanks so much!  Glad you found the info helpful ...

Dave:  I appreciate your thumbs up!  And credit companies, like any company, can be good or bad.  The details and the cost involved tell the story ...

Thanks, Michael.  Always appreciate your support and comments ...

Glad you found the information helpful, Ellie.  And thanks for the re-blog of the post!

David:  So many companies and services utilize credit scores these days.  You're so right.  People need to be aware of that and remain vigilant ...

Charita:  Understandable move ... and who knows themselves better than the credit holder themself?  But it does not help your credit score to do it.  Perhaps keeping the cards in a safety deposit box so you cannot use them or be tempted would work for you?  Out of sight .. out of mind??

I appreciate your kind words, Jason.  And more and more high schools are making classes on credit and finances a mandatory class for graduating.  But you're right.  Not enough.  ALL schools should do so ...

Richie:  The first-time buyer market has lagged behind in actuality vs the opportunity, in my opinion.  I think they've been hesitant for many reasons.  But I read just a week or so ago that your prediction regarding the move-up buyers is spot on for 2013.  I hope you're right ...

Gene

 

Jan 21, 2013 11:34 PM #16
Ambassador
768,033
Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

Thanks Gene.  I still have some to pay off so maybe I'll take your advice with those instead of closing them.

Jan 21, 2013 11:46 PM #17
Rainer
240,030
Carie Shapiro
North Shore Suburbs & Chicago Real Estate - Evanston, IL

Hi Gene!

I agree with Jason ... you would make a dynamite instructor!  So, with that said, I'm raising my hand with a question :)

You mention to never close out old accounts while in the process of establishing credit.  However, once you have established credit, it is a good idea to close out unused accounts, yes?  Someone once told me that each open credit card (even if not in use) affects your credit score ... and not in a good way.  Your thoughts?

Jan 21, 2013 11:54 PM #18
Rainmaker
570,170
Christine Smith
Buyers Brokers Only LLC - www.BuyersBrokersOnly.com - Canton, MA
Exclusive Buyer Agent & Attorney, Canton, MA

Gene....great advice, especially for young people just starting out.  My youngest (13 years old) daughter for some reason has a fear of debt - not sure where that came from!!  We tell her there is good debt and bad debt - you need to have some good debt to establish that credit history.  And, unless she wins the lottery, there's really no other way to buy a house than with a mortgage!  Funny kid!

Jan 22, 2013 12:21 AM #19
Rainmaker
1,245,008
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Charita:  Something to consider as you move ahead.  You know yourself best .. remember that ...

Carie:  Credit is very personal to each of us.  That said, I recommend not closing out old accounts or accounts you no longer use.  But describe "old".  And having dozens of cards .. well, that's never good either.  It really is best to have a report run ... and then get personalized advice from someone that has your report in front of them.  I get squeamish about making broad statements.  Shout out if I can help with that ... and then discuss ...

Christine:  I'd say you're doing something right if you have instilled a healthy respect in your daughter for credit and debt.  Most that age wouldn't even have much of an opinion!  With good guidance, I'm sure as she matures that she will get the good and smart prospective regarding both.  And yep, kids can floor you at times.  We had two boys.  Completely different outlooks and take on spending.  Same parents for both ... so how does that happen???  Some things remain a puzzle ...

Gene

Jan 22, 2013 03:59 AM #20
Rainmaker
365,647
Bridget "Mortgage Mama" McGee
SWBC Mortgage 410-960-2061 - Baltimore, MD
Maryland Mortgage Mama NMLS#196068

Hi Gene,  I reblogged with this:

This is a great post on establishing credit. Like Gene, I am seeing lots of folks who are trying to buy that have very "thin" credit profiles.

Please note: DO NOT PAY OFF OLD COLLECTIONS prior to speaking to a credit knowledgable lender. This may delay your purchase by bringing an old negative account current. Although it seems counter-intuitive a paid collection with a date of last activity (DLA) within 30 days affects credit scores more negatively than an old collection account with a balance.

Great Job Gene! Between you and Larry Bettag, I may never need to write about credit again!

Maryland Mortgage Mama 

Jan 22, 2013 04:44 AM #21
Rainer
284,418
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Gene -- wanted to thank you for another great article on credit and how poor credit can be helped.  One thing we heavily suggest to our clients is to go to www.annualcreditreport.com, and just downloan ONE credit report, then do it for the second agency in 4 months, and the third in four more months, so that they can keep an eye on their report, and be proactive if something strange shows up on a report - rather than having to wait until a year has gone by.

Jan 22, 2013 05:48 AM #22
Rainmaker
1,245,008
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Bridget:  I kidded Larry that he and I were a great Illinois "tag team" for credit info!  But I'm awfully glad you chirped in and added the clarification and notice that you did.  Great job and thank you ...

Steven:  You make another great addition and add great info.  Steady, consistent monitoring of credit and credit repair is vital to the success a client finds.  Thank you for adding your knowledge and insight.  You and Bridget (and Larry) prove that the mortgage lending info gained here on the Rain is priceless ...

Gene

Jan 22, 2013 06:35 AM #23
Rainer
323,694
Jimmy Faulkner
Florida. Homes Realty & Mortgage - Wantagh, NY
The Best Of St. Augustine

Thank you for your superb info & how you can build credit right away through a Credit Union. This is one of the best articles I have read on financing. have been a mortgage broker for 20 years & I do consider you a real pro.  Sincerely, Jimmy Faulkner

Jan 22, 2013 07:52 AM #24
Rainmaker
631,269
Nancy Conner
Olympia, WA
Olympia/Thurston County WA

This is such valuable information Gene!!  Thanks for providing a straightforward guide for anyone who has questions about credit and how to make sure theirs is the best possible (which pretty much describes all of us!)

Jan 22, 2013 08:58 AM #25
Rainmaker
1,245,008
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Thank you so much, Jimmy!  Your words made my day.  Hope we see each other alot in the future ...

Nancy:  You're right!  Everyone should be paying attention to their credit.  The vast majority can always spruce it up just a little bit more.  Glad you found the info beneficial ...

I will be working on that testimonial tomorrow ... promise!

Gene

Jan 22, 2013 09:48 AM #26
Rainmaker
1,328,612
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Hun... - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

Gene, I recently had two clients who always paid cash...didn't owe anyting...you would think that's a great way and rule to live by, but unless you're paying cash for your dream home...a buyer is definitely going to need some sort of credit/payment history.  All great points.  Stay warm up there in Chi-town!

Jan 23, 2013 07:54 AM #27
Rainmaker
1,245,008
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

You're right, Nick ... the perception surrounding credit has changed.  It had to.  Credit can be a good thing .. as you mention.  The trick is finding the correct and best balance within your own finances.

We're trying to stay warm up here.  Snow is in the forecast ... and the winds have already picked-up during the night.  Brrrrr ... how 'bout bringing some of that warm Alabama weather up here with you??

Gene

 

Jan 24, 2013 02:42 AM #28
Rainmaker
1,171,825
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

As usual, you provide excellent advice for the consumer. This time the importance of establishing and managing your credit.  Who would think that closing out an account could damage your credit.

Jan 24, 2013 08:50 AM #29
Rainmaker
1,245,008
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Jane:  I know ... it seems counter to all we were taught as youngsters really.  Yet, it is true.  Age, when it comes to credit, is a plus ...

Gene

Jan 24, 2013 11:33 AM #30
Anonymous
diksha

http://globalcreditcoach.com/

how do you establish credit

If your business is new, or if you haven't yet established business credit, obtaining tradelines is a great way to begin building your business credit report.

Jul 11, 2013 04:09 PM #31
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Rainmaker
1,245,008

Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi

708.921.6331 - 40+ yrs experience
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