How To Build Your Credit If You Can't Get Pre-approved

How To Build Your Credit To Buy A Home

If you dream of becoming a homeowner, one crucial step in the home buying process is to build your credit. Your credit score plays a vital role in determining whether you can secure a mortgage loan and at what interest rate. It reflects your financial responsibility and tells lenders how likely you are to make timely payments on your home loan. Here are some effective strategies to help you build your credit and achieve your dream of owning a home.

1. Get a Credit Card

This one seems a little obvious, but one of the first steps to building your credit is to establish a credit history. A credit card can be a valuable tool in accomplishing this. Start by applying for a secured credit card, which requires a cash deposit that becomes your credit limit. By making small purchases and paying off your balance in full each month, you demonstrate responsible credit management. This helps build a positive credit history and boosts your credit score over time. BUT BEWARE: if you do not utilize this tool properly and with wisdom, is can have devestating consequences. Credit card debt is no joke and you should NEVER send more on the card than what you are willing to afford. And ALWAYS pay in-full, on-time, each month. 

2. Ask Someone to Co-sign

If you're struggling to get approved for a credit card or loan due to a thin credit file or low credit score, consider asking a trusted family member or friend with good credit to co-sign for you. This can provide the lender or credit card issuer with an additional layer of security, increasing your chances of being approved. However, remember that co-signers are equally responsible for repaying the debt, so only go this route if you are confident in your ability to make payments on time. 

3. Be Cautious About Opening New Accounts

While having a diverse mix of credit accounts can be beneficial, it's important to be cautious about opening too many new accounts within a short period. Each time you apply for credit, whether it's a credit card or a loan, a hard inquiry is recorded on your credit report. Too many hard inquiries can lower your credit score and signal to lenders that you may be financially stressed. Therefore, only open new credit accounts when necessary and ensure you can manage them responsibly. 

Bonus tip: Once you do go under contract, please do not open any new lines of credit. Meaning don't buy a car, don't get a new credit card, don't finance furniture, none of it until you close on the home. Doing so messes up your debt to income ratio and can skew the lenders opinion of you're ability to pay the mortgage in a negative manner. Just buy the new car after closing day, thank me later! :)

4. Keep Accounts Open

Your credit history is a significant factor in calculating your credit score. The length of your credit history accounts for about 15% of your FICO score, so it's essential to keep your accounts open, even if you no longer use them regularly. Closing accounts can shorten your credit history and potentially lower your credit score. It's advisable to use your oldest credit card occasionally to keep it active and maintain a longer credit history.

Building your credit takes time, patience, and responsible financial habits. By following these strategies, you can improve your credit score and increase your chances of qualifying for a mortgage loan at a favorable interest rate. Remember, consistency is key – responsible credit management and timely payments are crucial for achieving your goal of homeownership.

In addition to these steps, it's essential to monitor your credit regularly. Check your credit reports from all three major credit bureaus – Equifax, Experian, and TransUnion – for any errors or discrepancies. If you find any inaccuracies, dispute them promptly to ensure your credit report accurately reflects your financial standing.

It's worth noting that building credit is just one aspect of preparing for homeownership. Saving for a down payment, managing your debt-to-income ratio, and maintaining a stable income are equally critical factors in the home buying process. Consulting with a trusted mortgage professional can provide valuable guidance and help you navigate the complexities of buying a home.

If you need help or have any questions on how you can STILL buy a home with NO credit, reach out to me through the chat box on my website or send me a text directly to 704.674.5629 with the word 'CREDIT' to talk more about that opportunity.