How To Build Credit So You Can Buy A House

hey Kyle here with Kyle sea grapes coms that they were talking about how to build and improve your credit so that you can buy a house so if you're looking at buying a house maybe this is your first time or it might be the second or third time and you're just looking to make sure that your credit score is good enough to buy a home you're in the right spot because we're not only going to talk about how to build credit but we're going to talk about some little tips and tricks you can use to improve your credit if it's kind of in the ashes right now or even if it's a great what you can do to keep it growing the problem is credit is like this big mystery and it runs so much of the big purchases that we make in our life but there's not a definitive guide on how to use it and then you go and you know maybe look up on Credit Karma or something online to find what your score is and then you go to a lender for a mortgage or a car loan or a personal loan and your score is different and so it's hard to track since your score is different all over the place and you don't get all of the information upfront it's hard to figure out what actually is your score and how do you improve it you don't even have a baseline to know how to improve it to begin with so I'm gonna give you a couple rules on how to build your credit and figure out where it's at so number one let's talk about target score where should you be the target score that you want to hit from what I've found through multiple different lenders is you want to be at least a 640 that's not the minimum to qualify if you're getting an FHA loan you can go all the way down it's like a 580 sometimes even a 500 usually 580 is gonna be the standard for your credit score on an FHA but your interest rates are going to get a lot better when you hit that 640 range so I work as a mortgage broker so I work with a lot of different lenders and what I've found is when we're pricing the loans with different lenders anytime you hit that 640 credit score and above you get alarmingly better interest rates for some reason there's there must be some statistic that they're working with in their analytics to see that people who have 640 scores and above default less on their mortgage so 6:40 is a great target so to figure out where you're at you're going to have to do what's called a soft pull on your credit so anytime you get your credit score for free that's going to be a self pull so anything like Credit Karma or mint or if your credit card gives you its score that's going to be a soft pull okay so there's two different types there's a soft pull and a hard pull and a soft pull is like kind of a little glimpse at your credit score and a hard pull is the full detailed picture and the way I'd like to think of it is like a soft pull is almost if you took your credit score and you threw a blanket over top of it you can kind of make out the shape and see what it is you can kind of see you know how it's moving but you don't see the full picture where hard pulls like you're kind of pulling the blanket off of that credit score and you can see everything in there and that's the real number so if you're using something like Credit Karma or something to pull your credit score online it's gonna give you a really good idea of your scores momentum so if it's going up or down and then just a general range of where you're at so if credit karma says it's 640 then you can expect if the lender pulls your credit score that it could be maybe 680 or it could be maybe down to 620 so give it a fair range when you're looking at that so now that we know what score we need let's talk a little bit just kind of philosophically about credit with this credit what is your credit score it doesn't mean so sometimes credit and maybe this is just a really good marketing techniques on the credit card companies but credit is not synonymous with how good you are with money credit is only a number that tells you how well you pay back debt that's it that's all it tells you is how well do you pay back debt with a number okay so the higher that number is the better you are at paying back debt the lower that number is the worse you are at paying back debt it does not tell you how good you are at money so you could be really great at money have a lot of savings do a lot of investing but maybe you have bad credit just because you haven't had a credit card in forever so this is true of you know if you see people who follow Dave Ramsey in his sometimes they don't have a credit score or they have really bad credit scores but they have fantastic financial lives so credit is only a teller of do you pay back a debt on time that's it it's not how well you use money so that brings us the question of do you need credit to buy a home the short answer is it's so much easier if you have a credit score and a good credit score to purchase a home okay if you don't have a credit that's no problem you can do what's called a manual underwrite with a lender so if you don't have any credit established maybe you're younger or maybe you just never used any debt of any sort then you can do what's called a manual on to write and you'll talk with a lender about this and it's a little bit more paperwork intensive to document because they have to document trade lines so they're going to look at your rent history maybe utility bill history to verify your ability to pay back debt of sorts so you can get a loan without a credit score but you're gonna run into it being a more difficult process and you're probably going to pay a higher rate because loans without credit scores or are more risky so if you do have credit or if you don't have credit a good way to establish credit is to begin opening some accounts so one way you could do this safely is to open a secured credit card or you could look at taking your rent payments and putting them on your credit report as well so long story short it's great to have credit because it makes the process so much smoother especially if that credit is really good and it doesn't take that long to establish credit if you had no credit right now what I would do is go open a secured credit card account start with that let that kind of be a good baseline for you and then maybe look at some other small loan or something that you could pay off quickly just to add it as another trade line for you all right so let's talk about bad credit real quick first of all do you need a credit repair company this one's this one there has been a little bit on one side I think if you have a really reputable company that you know of you've had friends or family in that company and they give you a really strong recommendation then that might be a great option the problem is there's a lot of credit companies out there or credit repair companies out there who just frankly don't do a lot or they do some but they just do it slower than you could because you can repair your credit on your own you really can't and I'm gonna leave a link in the description here that gives you a link to the CFPB's website and it gives you a step-by-step guide on how to repair credit and this would be you know disputing any errors on your credit report you can do this on your own it's really not terribly difficult you're just gonna mail mail some documentation into you know the the credit reporting agency so TransUnion Equifax Experian it's really not terrible to do you can have someone pay for you to do that but just make sure that they're a reputable company because it's very easy for you to go on a site like Credit Karma look at some derogatory accounts or see if you have any errors and then you can contact those companies and either arrange payoffs or pay for deletions or straight up just get those disputed with those companies by yourself and you'll save yourself some money because sometimes credit repair companies can be a little expensive and the process is slow enough that it can add up to quite a bit over a period of time alright so now let's talk about the three golden rules that I use with all my clients to help them build credit so number one is time number two is ratios number three is accounts so this is how I kind of organize and think of it the best way possible so start with number one at time by time what I mean is pay on time rule one is to simply pay on time nothing hurts your credit report worse then you missing payments because you missing payments leads into the whole spin cycle of having collection accounts or bankruptcies you you know obviously that's a hasty to get there that fast if you miss one payment doesn't mean you're gonna have a bankruptcy here soon but it leads down that path and and having a missed payment hurts your credit score so much it's ridiculous more than anything else paying on time is the single most important factor to making sure your credit score is good and is continuing to grow and doesn't drop down so if you do miss a payment keep in mind that that's going to be on your credit report for quite a while and to make up for that you know it's not just going to go away you're going to have to make sure that you continue to press in and really make sure everything else in your credit report is good and you never miss a payment again so one thing to do is set up auto payments make sure that you are always on track of that bill if you need to set up auto payments set up a reminder the day that's gonna get pulled out set up a reminder five days before her that payment is gonna come out that way make sure money is always there if it's not you can get it in there you have to make sure that you pay on time otherwise your credit score will drop very very quickly number two is ratios so this is where some of the you know weird parts and the mystical parts of credit kind of come in is the idea of ratios so a ratio is just basically how much debt are you using versus how much are you allowed to use so this is all expressed in ratios so let's say that you had a thousand dollar credit card limit so you're allowed to spend a thousand dollars on your credit card but you only had spent so far five hundred dollars of that well you're at a fifty percent credit card ratio this is called a utilization ratio so you've used fifty percent of your credit card if you went up to $750 you'd be using 75% of that credit card okay so kind of the magic number here with the ratios is you ideally want to get your ratios below 30% okay the whole world of credit is all based on some math and you know when you get two different numbers their score changes so if you get your credit score down to 30% then you're gonna start seeing your score increase and depending on what that balance was and how many of your accounts you get down that far is how quickly your credit score is going to rise but take a look at all of your accounts see what the max limit is and then make sure that the balance in that account is below 30% okay because what these credit card companies don't want you to do is they don't want you to max out all of your accounts they mainly want to have most of the account available as credit because if you max it out what you're telling them is that you're not able to manage that effectively because you've hit the limit right because remember credit score is not about how you use money credit score is about how you pay back debt and so when that score continues or when the amount of debt you use continues to increase the credit card companies feel like and not just credit cards any of the debt companies feel like you're going to have a harder time paying back that debt okay so look at all your accounts make sure they're below 30% another option is while you're taking those accounts to down to 30% because it might take a few months for you to get there is also looking at increasing your limit so if you're in good standing with the accounts that you have you can contact them and ask them to raise your limit because it works the same way you know if your credit limit is right here and the amount you've used this here well you can drop it down to 30% but at the same time you can also increase the limit which is going to accelerate you getting to the 30% mark a lot quicker okay so we talked about time paying on time we talked about ratios getting below that 30% and now finally is accounts so with accounts we're managing the accounts that we have right now so the best way to do that first is go on a site where you can get your free credit report and take an inventory of the accounts that are on there okay so see what what accounts you have make sure they're in good standing if you have any accounts that have fallen behind or you've missed payments on or you have collections accounts contact those companies and see what kind of arrangements you can make to just add some more clarity and good standards to those accounts and make sure you're caught up on payments and you don't have anything outstanding on those accounts okay in your account section 2 this is also where you want to clear up any errors or derogatory counts or collections make sure that you're working on getting those paid and taken care of also in the accounts is where we're managing the age of our credit so this is kind of a weird factor that goes into your credit score is how old your credit is because again keep in mind create score is a judgment of how well you pay back debt and so the longer that you've had credit the longer that you've had debt the more of a history that you have with all these companies and they feel you know better about you being able to use credit because they've been able to see your actions over a longer period of time so your credit score in general will be higher if your average age of accounts is older than someone who has newer credit okay so this is often why you know you might see when you're first trying to create credit or anybody who's younger and is just beginning to have debt their credit scores are going to be near the lower end and it's hard for them to get really high in the high 7s height you know mid a range because they just don't have any old accounts the accounts that they might have only bit might only be one to three years old so the longer your average age of accounts is the better your score is going to be because your age of accounts is a big factor in your credit score so in this when you're managing accounts when you pay something down it might be super exciting to say let's close the account let's tear everything up let's throw it in the trash and forget about it but what will happen is if you close an account let's say you've had an account and it's been a credit card you've had it for five years and you're excited to pay it off and you finally put that final payment in there you paid it off it's all done and then you close it okay so you just took away five years of credit history from reporting on your credit report it's still going to be on your credit report but that five years isn't going to be taken into account because it's closed okay it's going to decrease your average age of accounts so if you have accounts don't pay them down all the way if they're like a credit card if it's something like a loan like a car loan just pay that one off you don't have to leave a small balance on it but for credit cards and any revolving credit just keep a very small balance on it if you want you can keep a dollar on it and just let it sit it's not gonna collect that much interest a couple pennies to make sure that you keep those accounts open so to recap you want to keep in mind three things for building and maintaining credit number one is time make sure that you're paying on time if you're behind you need to catch up contact the credit company that you're behind with catch up make sure that you're on time number two is your ratios okay work towards paying down debt or increasing your credit limit so that your credit used is 30% or lower with all of your accounts and then finally is managing accounts if you have any derogatory accounts or errors get those fixed as soon as possible again I'll have a guide in the description for you that helps you out there and then also don't close accounts make sure your average age of accounts doesn't change by just maintaining the accounts that you have okay hopefully this added some clarity to credit credit can be remark Blee confusing and overwhelming but just continue working at it if you have questions contact a mortgage advisor and see where you're at and the plans that they have to help you build credit so that you can purchase a house and do with the best interest rate possible all right if you have any questions let me know in the comments and I'd love to help you I'll talk to you soon

Channel: Win The House You Love

Views: 47,848

Keywords: building credit, maintain credit, credit to buy a home, minimum credit to buy a home, credit score needed for a mortgage, home loan credit requirement

Id: 3vSkGrodljg

Length: 17min 22sec (1042 seconds)

Published: Sun Aug 11 2019