Due to the consistent rise in Hyde Park home values and subsequent rental costs, many people are starting to look more seriously at home ownership before they are priced out of their community. Understanding how credit plays a role in your ability to purchase a home is critical. If you do not have credit, then understanding how to build credit with a credit card can really be life changing. It’s an easy way to change your financial future.
You ideally want a card that reports to all 3 credit bureaus and you want to PAY IN FULL each month. If you are unable to do so, do not carry a balance greater than 10% of your card’s limit. The best way to accomplish this is live within your means: DO NOT BUY MORE THAN YOU CAN AFFORD. IF YOU CANNOT PAY OFF THE DEBT IN FULL, YOU CANNOT AFFORD THE PURCHASE! Paying off the card automatically each month is easy, with automated payment options and flexibility in selecting your due date, you should be able to pay in full each month or carry a minimal balance. You are not jumping through silly hoops trying to ‘hack’ the FICO system simply charge what you can pay for and go about your life.
Example: I charge my groceries to my credit card and when I get home, I pay off the bill. This allows my behavior to be reported to the credit bureaus (they hold the key to your financial future if you operate in the realm of credit). You want all 3 bureaus looking at your good credit habits (experian, transunion and equifax). By showing them your good habits, you will increase your credit score in a hurry.
There are 5 factors that go into a FICO score. The biggest 2 are payment history (35%) and amounts owed (30%). As you can see, it’s more important to pay on time than it is to owe a lot of money. Never take out debt to raise your credit score. That’s not a wise choice. That’s like spending money in hopes you can save money by getting a lower interest rate. Does. Not. Make. Sense. Go for the 35% and pay off your card each month. Being in good standing with your debt is the largest factor in your credit score.
At The Mandrell Company, we try to teach strong financial habits to increase home ownership in communities across Greater Boston. We specialize in teaching clients how to build wealth through real estate, and to get started, you need a good track record of strong financial decisions. To attend one of our free seminars, please register at Urban Money Matters or contact us directly at email@example.com.