When it comes to obtaining a mortgage, your credit score determines how trustworthy you are to lenders. The better your credit score, the lower your mortgage interest rate and monthly payments will be. Furthermore, having a better credit score increases your chances of getting approved and gives you more options to choose from.
The easiest way to start building your credit is to apply for a credit card and start making your monthly payments on time. If you’re in the process of rebuilding your finances after going into debt or you are looking for a credit card for the first time, there are several options that charge no annual fee so you don’t have to worry about hidden costs that could make it harder for you to get ahead.
Here are a few things to consider as you start building your credit.
Secured credit cards require that you make a deposit which will serve as your line of credit. For example, if a secured credit card requires you to deposit $250, your credit limit for that card will be $250. This is the perfect option if you are just starting out with zero credit history. After having paid off your balance on time each month for a year, most issuers will return your initial deposit.
If you have access to a trusted friend or family member, becoming an authorized user on their account can help you to build a credit history on your own credit report. However, take care to ensure that they always make good spending decisions and have a good credit score. Talk with them to develop a plan for the amount you will be allowed to spend each month and how you will pay that amount back in full.
Rent-reporting services are able to take a bill that you already pay and make it appear on your credit report. This helps you to build up a positive history of on-time payments faster.
Building your credit should be viewed as a lifelong journey not a fast fix. Every step you take toward ensuring the security of your financial future should be viewed as a success. While it may take you some time to get to the credit history you need to apply for a mortgage, don’t get discouraged.
The best part? In just a few years, you could be moving into and enjoy your brand new home!