Learn About Building Good Credit With Your Memphis Loans Expert
Good credit is essential for so many things in life. If you want to lease a car, rent an apartment, get a business loan, or buy a home, you need to have a credit score that proves that you can be trusted to pay back whatever you borrow on time. Your credit score helps to determine your interest rates, the size of your loan, and whether or not you can take out a loan at all. A bad credit score can end up costing you a lot of money. A lower credit score will always mean a higher interest rate, and in some cases, you may have to pay larger security deposits for day to day needs. If you have bad credit or even no credit at all, the idea of improving your score can be daunting. It can be hard to find the information you need, so your Shelby County lending expert, The Karlton Govan Lending Team, is here to help!
Understanding Credit – What it all means
Even though building good credit is essential, it can be hard to find all the facts you need. Many of us have never had someone to help us and explain how the process works. Here are some of the essentials that you need to know before you start building your credit.
Your credit report shows your credit history. It includes any money you’ve borrowed and how well you’ve paid it back. It can also include any bills you didn’t pay on time, though it by default doesn’t include bills that you do pay on time. Your credit score is a measurement of how well you’re managing your credit accounts. Credit bureaus collect the information that factors into your FICO credit score. These scores are the easiest way for a lender or landlord to know if you meet the standards they consider necessary for the situation. You can also check your credit report and credit score yourself, and you should! It’s important to know if you’re making progress and check for any errors.
It takes time
First and foremost, make sure your expectations are setting you up for success. You can’t fix your credit overnight. It’ll take at least a few months or as long as several years to fix your credit. If you don’t have any credit at all, it will take at least six months for a usable score to appear on your report. This can be frustrating, but if you stay on top of your debt and build a strong credit history, the results are worth it.
Debt happens to everyone
Don’t beat yourself up about your debt. Anyone can find themselves in a tough situation, and there’s no shame in needing to put some extra work into getting your credit where you want it. It’s important to start with a plan and stick to it. Getting out of debt can improve every part of your life, from relationships to stress, to health, and of course financial security.
Memphis Credit Building
Building your credit can be a catch-22. You need good credit to open accounts that will improve your credit, but without already having good credit, you can’t seem to get anywhere! The good news is that many banks have options to help you out.
Credit Building First Steps
Secured credit cards allow you to start building your credit from scratch. They’re backed by a deposit that you make, so it’s like you’re borrowing your own money. It’s good for you because it affects your credit score, and good for your bank because they don’t actually have to take a risk since you’re not borrowing anything.
You can also get a credit-building loan. For this type of loan, you don’t actually get the money until you’ve made all of the payments. It helps your credit score because the payments are reported to credit bureaus. But, doesn’t put you in any debt because it’s more like a savings account than a loan.
If possible, you can also use a co-signer for a credit card or a personal loan. If someone with good credit is willing to co-sign with you on a credit card, it will help your credit score significantly. Before you do this, make sure that the account will actually report to credit bureaus in your name and not just your co-signer’s name. Also, make sure that you and your co-signer have a clear agreement about how the account can be used, and do your part of the stick to the plan.
It’s possible to report your bills to credit bureaus so they can have a positive impact on your credit score. Services like Rental Kharma and RentTrack take an expense you’re already paying and put it on your credit report. As long are you stay up to date on your existing bills, your credit will build over time.
The Biggest Credit Building Factors
Your credit utilization ratio represents how much of your available credit that you’re using, and you should keep your eye on it. Your utilization ratio makes up 30% of your credit score. The only factor with more impact is your payment history. Keeping your credit utilization below 15% of your limit can have a big impact on your overall score.
As you probably know by now, your payment history has the most significant impact on your credit score. If you aren’t making payments on time, all of your other credit-building work will fall short. If you know that you have collection accounts on your credit report that are negatively affecting your score, contact the original creditor and see if they will remove the delinquent account if you pay it off. Some creditors may even remove late payments as an act of goodwill.
Mistakes that keep you from building good credit
- Don’t close your credit accounts, even if you’ve paid the balance. This can negatively affect your averages. Your credit history length is 15% of your credit score, and closing your first credit card because you have a newer one with better interest won’t ultimately help you. You can stop using the older account, but keep it open.
- Don’t forget to check your credit report regularly. There are websites like My Fico that make this easy.
- Don’t have too many credit cards. One is enough to start with. It can be helpful to have multiple credit accounts, so credit building loans or secured credit cards will help you build good credit without ending up more in debt.
- Don’t apply for too many credit cards or credit accounts at the same time. Each time a lender checks your credit report, your score goes down buy a few points. If too many lenders are checking at the same time, your score might drop significantly. Credit inquiries and new accounts are 10% of your total score, so it’s wise to wait until your credit is strong or you’ve completed the mortgage process to open any new credit accounts.
Trust Your Local Memphis Lending Expert
The Karlton Govan Lending Team is here to help you get the home of your dreams. Having strong credit is an essential part of the process, and can save you a significant amount of money thanks to lower interest rates. We’re happy to answer any questions you have about building your credit score. Contact us today to start your home buying journey!
Karlton Govan is a certified mortgage loan officer NMLS#652305