Good credit is often confused with easy credit, and vice versa. It depends on your definition of “easy.” When you first start out, your credit should be excellent. When you turn 18, credit card companies start sending you offers. They want you as a customer as soon as possible because you qualify for their criteria, which are set down by them; but also by the government. Right out of the gate, you have a FICO score, which stands for Fair Isaac Company. It is the two last names of the founders of the company. Typical FICO scores range between 300 and 850, with the higher number meaning good credit or better credit.
This is a score that will follow you for your entire life. It is the score that is used by all major credit bureaus and credit companies in determining your credit worthiness, or ability to pay back a loan. So, credit companies are those who will help you buy a car, a house, or any other major purchase in your life. It is one of the most important numbers that you will ever run across.
When you first start out, you may have no credit history. This can be as bad as having poor credit, or a FICO score below 550. The reason is that lenders simply can’t gauge how well you will handle any borrowed money. Not to fret, there are simple ways to build and establish good credit so you can get the credit scores for the best mortgage rates. Number one is with utility bills in your name, or taking out secured credit cards. Secured cards are ones that are approved by your making a deposit in the amount of your credit line. For example, if you open an account for $300, use the card, and then make regular payments for 6 months to a year; then the credit card company will report this payment performance to the credit bureaus and you will begin to have a credit score.
At this time, you can move up to non-secured credit cards, which require no deposit. Approval is usually dependent on your having a job; however, some young people still living at home can report their “household income,” which includes their parents income. This is a small window of opportunity, usually only between the ages of 18 and 20. After that, you are considered of legal age, and not eligible to report your parent’s household income. But take advantage of it while you can, because bigger days are ahead.
So, let’ say that you reach the age of 21, have a good job, get your first apartment, and maybe even find a significant other to make big plans with. Then, you are looking at the big loans: Automobile and Home. These should not be that difficult if you have taken care of your credit. An easy way to see and monitor your credit is to check your credit scores. This will help you monitor all three of your credit scores and see if anything pops up that might be a problem.
Problems can include identity theft and security breaches. You can subscribe to services which protect your credit or you can contact the credit bureaus directly through mail and request that they “freeze” your credit. That means that no credit purchases can be made outside of your credit cards without your permission. This means no one will be able to take out a home or car loan in another state under your name without your knowledge.
Good Credit Can Be Easy
Credit can be easy, or it can be a mess. Like dentists say about teeth, ignore them and they will go away. The same is true about good credit. With a little bit of patience and a little bit of work, you can keep your good credit humming along your entire life. It sure will make your life easier and more enjoyable. It also makes you more attractive as a mate. Some comedians joke that the best aphrodisiac is money; but the reality is that money is empowering. It makes people feel good, plain and simple. It may be hard for a young person to understand that, until they come up a day late and a dollar short over and over. That starts to wear on a person.
Then when a windfall or a break in the financial weather comes, they feel the lift in their spirit and the wind beneath their wings. Then they get it. They know that money is a tool, and if used properly, can fix most things that life throws at them. Money makes for a happy marriage as well. Therapists say that the vast majority of marriage problems are caused by fighting about lack of money, not adultery or infidelity. People don’t usually marry for money, but it sure does help keep them together. Especially when you and your new bride are first time home buyers. You will find that the lender is much more willing to give you the money if you make a joint application listing both of your incomes. While homes loans with bad credit are possible, you’re better off starting out taking the right steps. So, it is important for you both to have good credit before you go to the bank.
Once you both have good credit and are ready to go house shopping, you will want to get pre-approved for a home. This is your golden ticket that you can proudly wave in the face of the realtor when they ask. All of them will ask if you are pre-approved; and if you are standing in the house that both of you absolutely must have, it will be a happy day when you have your letter from the bank in hand. You’ll have multiple loans to choose from such as an FHA loan, a VA loan, a conventional loan or maybe you just need to refinance your current home. After that, it is only a matter of the realtor walking the papers through escrow. Otherwise, you face the disappointment of getting that dreaded phone call from the realtor telling you that your dream home has been snatched up while you two were waiting for financing. Not a happy night. One of you will probably end up sleeping on the couch.
So, be proactive and be positive with your credit. Next to kids and retirement, it’s one of the most important things in your life.
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