In order to borrow money for something big and important like a house, you must first demonstrate that you are “credit worthy“.  You must show that you are ready, willing and able to repay smaller debts before you will be allowed to take on a large one, such as a mortgage. And you have to have a track record of doing it so that banks will consider you a good credit risk.

This is a tricky balancing act.  While it’s well known that many credit card companies solicit college students with easy-money offers and it’s very tempting for young people to get into financial trouble that way, it’s less known that the other extreme of going many years without buying on credit can also be harmful.  Why is that? Because you won’t be able to get credit when you need it if you don’t have a history of using it responsibly.

Many of us have been raised to avoid credit cards, car payments, student loans and the like.  But if you have none of them, you will not be able to qualify for a home mortgage, either.

The best path is often the middle way, and that’s the case here too.  Building credit is a positive thing but requires caution.  The right time for credit cards or small debts is when you can use them responsibly (meaning: hardly at all) and pay them off monthly.  Age 18 might be too young, but age 30 is likely a bit late to dive into this pool of credit! 

What is the best way to get started in creating your good credit history?  Start with something simple, with a credit card fro a reputable institution (they are not all equal!) that you can use a little, regularly, and pay off each month.  (Please take a lot of time in finding the right one – check online reviews, read the fine print etc. because some of them have draconian clauses that can really hurt you.)

The little things, like paying on time, matter a LOT – this will be true when you buy a home, too. Make your  scheduled payments late and you will be penalized both with costly late fees (also likely a higher interest rate) and a “ding” on your credit!  You can do this while still a college or graduate student (your folks may need to co-sign) but be very very careful not to get in over your head or the whole effort will backfire.

After you are out of college or a graduate program and into the work force, you will probably want to get an apartment.  You may need to get your parents or someone with more credit to co-sign initially.  This, too, can build your credit.

An auto loan also can help you establish good credit, but again, don’t bite off more than you can chew – get something manageable and make sure you pay it on time, religiously, without fail.  In other words, when you buy, spend less than what you think you can afford.  (I have known parents to sometimes give their kids a car when graduating from college.  What might be better is to pick out the vehicle together, have the parents pay for most of it and allow the student to take out a loan for the balance.  The newly minted graduate could have the balance of cash in savings or even a dedicated bank account with automatic payment deductions, if need be, but the car loan payments would establish a positive credit history for their son or daughter.)

Student loans, too, are not all bad in that they can help to establish you as credit-worthy, as long as you (or your parents) get them paid off on time.

Credit Scores are used for more than just borrowing money

Having a strong and positive credit history will give you the all-important FICO score that is used for much more than just big purchases or loans such as a home mortgage.  Insurers use that rating, too, to decide how much of an insurance risk – they’ve found that people with lower credit scores tend to have more insurance claims.  Low credit scores may result in either no insurance offered or insurance at a higher cost.

Further, some jobs require good credit.  Why is that?  Employers (such as top-security posts) want to make sure you are organized and not vulnerable financially to being extorted.  Low credit is a bad mark on not just your bill paying, but more.  Some people who’ve lost their homes in foreclosure have also lost their security clearances – and their jobs!

Whichever way you go to build your credit, be conservative and use credit not as a crutch but as a strategy.  Ideally you’d pay cash for everything and never have debt.  But unfortunately that plan would render you unable to get a loan for the big, important stuff.  So sneak up on borrowing quietly and carefully, using less than you can afford, paying off bills earlier than due and living very peacefully within your means.  Do that when you buy a house, too, and you will have real peace of mind.

For more reading on credit, loans, mortgage and financing:

Q & A on credit (on my popehandy.com website)
Mortgage Q & A (also on my popehandy.com site)
Trying to Buy a First Home in Silicon Valley Amidst the Mortgage Meltdown, Credit Crunch and Financial Crisis

  1. 4 beds, 2 full, 1 half baths
    Home size: 1,856 sq ft
    Lot size: 6,664 sqft
  2. 4 beds, 2 full, 1 half baths
    Home size: 2,113 sq ft
    Lot size: 7,187 sqft
  3. 4 beds, 2 full baths
    Home size: 1,764 sq ft
    Lot size: 7,013 sqft
  4. 3 beds, 1 full, 1 half baths
    Home size: 1,260 sq ft
    Lot size: 8,842 sqft
  5. 4 beds, 2 full baths
    Home size: 1,395 sq ft
    Lot size: 5,009 sqft
  6. 3 beds, 2 full, 1 half baths
    Home size: 1,564 sq ft
    Lot size: 1,481 sqft
  7. 2 beds, 1 full bath
    Home size: 798 sq ft
    Lot size: 7,100 sqft
  8. 2 beds, 1 full bath
    Home size: 903 sq ft
    Lot size: 7,797 sqft
  9. 6 beds, 6 full, 1 half baths
    Home size: 5,554 sq ft
    Lot size: 15,725 sqft
  10. 5 beds, 3 full baths
    Home size: 3,250 sq ft
    Lot size: 37,505 sqft

See all Real estate matching your search.
(all data current as of 5/29/2017)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

Translation

by Transposh - translation plugin for wordpress
Mary Pope-Handy
Realtor
ABR, CIPS, CRS, SRES
Sereno Group Real Estate
214 Los Gatos-Saratoga Rd
Los Gatos, CA 95030
408 204-7673
Mary (at) PopeHandy.com
License# 01153805


Selling homes in
Silicon Valley:
Santa Clara County,
San Mateo County, and
Santa Cruz County.
:
Special focus on:
San Jose, Los Gatos,
Saratoga, Campbell,
Almaden Valley,
Cambrian Park.
Let’s Connect
Find Mary on FacebookFollow Mary on Twitter
RSS FeedFollow Mary on YouTube

Please see more icons
at the bottom of the page.

The real estate search
Use the widget below to browse properties which are for sale, under contract (pending) or sold. Want to view only homes which are available now? Use the "find a home" link on the menu above (next to the "home" button).
Mary’s other sites & blogs
Valley Of Hearts Delight
Santa Clara County Real Estate,
with an interest in history

Move2SiliconValley.com
Silicon Valley relocation info

popehandy.com
Silicon Valley real estate,
focus on home selling

Silicon Valley Real Estate Report
Silicon Valley real estate
market trends & statistics
Mary’s Blog Awards
Top 25 real estate blogs 2016
2016: Personal Income's list of top 25 real estate blogs.


Best Realtor blog award
2016: Coastal Group OC's list of best Realtor blogs


The 2009 Sellsius list of top 12 women real estate bloggers
2009: Sellsius list of top
12 women real estate bloggers


Mary Pope-Handy's Live in Los Gatos blog won the 2007 Project Blogger contest, sponsored by Inman News and Active Rain

2007: Mary Pope-Handy and Frances Flynn Thorsen win the Project Blogger Contest for Mary's Live in Los Gatos blog. The contest was sponsored by
Active Rain and Inman News.


Non blog award


Best real estate agent in Silicon Valley from the San Jose Mercury News poll of readers in 2011
"Best real estate agent
in Silicon Valley"

2011 readers' poll,
San Jose Mercury News

Categories
Site Statistics
  • Users online: 4 
  • Visitors today : 457
  • Page views today : 798