You’ve crunched the numbers, did the research, and you’re ready. It’s time to buy a home. This is an exciting time, but it can become tricky for those who haven’t built up credit or have poor credit. Maybe you’ve avoided debt or maybe you hit a rough patch that impacted your credit score. Whatever the case may be, having no credit or poor credit can put a pause on the home buying process.
Mortgages require a good credit score as a way to show the lender how well you’re able to pay your bills. This is how the lender will decide if you are in a good position to buy a house. For first-time homebuyers with no credit or poor credit, Community West Credit Union in West Michigan offers advice on what you can do to build up your score and establish a positive credit history.
Apply for a Credit Card
One of the best ways to establish credit is to open a credit card and make payments on time. By doing so, you will begin building your credit score. A credit card is a good way to provide credit bureaus with information on your finances and your level of responsibility. This information is what is used to create a credit report. There are many different credit card options at Community West, but make sure you understand the rates and repayment plans before choosing one. For someone with poor credit, a Classic Secured Credit Card may be the best option to increase your credit score. Once you receive your new card, it is important that you maintain it properly. Doing so will help you establish the best credit score possible.
Maintaining Your Credit Card
It is very important to have financial self-control when managing a credit card. This will keep you from overusing, building up debt, and possibly damaging your credit score. Some tips on managing your credit card include:
Keep Tabs On Your Credit Utilization Ratio
To encourage a healthy score, you should try to keep your credit utilization ratio low. This means spending only a portion of your available credit. As a general rule, it’s a good idea to keep your spending to around 30%. This is a good way to show lenders that you are a capable, responsible cardholder with no intention of overspending.
Set Up Automatic Payments
Avoid any potential late payment complications by using the auto-pay option, if available. Having your monthly credit card payment taken out automatically helps ensure your bills are paid on time. With automatic payments set up, you won’t have to worry about the additional fees that often come with late payments. Past-due payments can negatively affect your credit score and may even continue to show up on your report years later.
Apply for a Credit Builder Loan
Credit builder loans are small loans designed to help credit union members establish or improve their credit profile. These short-term loans may boost credit significantly, which helps members who are preparing for a financial milestone, like getting approved for a mortgage. Because late payments can radically worsen your credit, credit builder loans are generally recommended for members who can commit to timely repayments. In the end, the CWCU Credit Builder Loan helps prove to lenders that you’re careful with your credit, helping you establish or rebuild your credit profile.
Build Your Credit over Time
It takes time to build your credit score, so remember to be patient with the process. Working toward building credit well before beginning the home-buying process will allow plenty of time to establish your history. This provides lenders with a wide enough timeframe to evaluate your record and helps ensure your debt-to-income ratio is ideal.
Consult With Community West Credit Union
As a member-owned organization, Community West Credit Union is focused on putting your needs first. We are always seeking ways to educate and assist our members with their financial plans. With our mortgages and other lending options, we can guide first-time homebuyers toward their homeownership goals. Visit one of our branches in West Michigan or contact us today for more information.