The Millennial's Guide to Establishing Credit
One of the issues I hear raised most often regarding Millennials surrounds the topic of credit cards. It's often reported that they have an aversion to them ...
I'd have to say that's backed-up by my experiences as a LO too. It's no longer that rare to talk to a Millennial-age hopeful homebuyer that has no credit card.
Given the recent financial crisis we passed through, I get the reasoning and sentiment behind their avoidance of debt. If you don't have credit cards, you're not as likely to buy things you can't afford.
Where this becomes problematic though, is when Millennials want to buy a home. Simply put, you have to have debt in order to apply and be approved for more. Seemingly defies logic, doesn't it?
But Mortgage Underwriters are looking for proof ... a documentable history or "track record" of how an Applicant handles debt. It's part of the "litmus test" used during Mortgage Approval.
Don't have credit cards? An Underwriter has little to base an opinion on regarding your credit-worthiness or how good a financial risk you might be.
You're much like a rookie major league hitter stepping-up to the plate for the first time in the big leagues. Your batting average looks like a bunch of goose eggs.
No at bats. No hits. No runs. And no one knows if you'll whiff ... or hit home runs.
So, if you're a Millennial (or anyone else) that's hoping to buy a home, yet you currently have no established credit or credit cards ... what do you do? Here's my advice:
- Try to Remember: Credit Cards don't have to be evil, bad things. When utilized properly and with restraint, they actually do you good and boost your Credit Scores
- Establish credit. Open a functional department store account or gas card. Use it, pay it off monthly. Or IF you do retain any balance on that card, keep it under 30% of the AVAILABLE CREDIT LIMIT (10% or less is actually ideal).
- If your present credit (or lack thereof) keeps you from being approved for such a card: Establish a SECURED line of credit with a company that allows that. The bank where you keep your savings and checking account is a great option. When establishing this type of card, you essentially "pledge" an amount ($500 - $1,000), then repay the bank or credit company over 12 regular installments to pay that amount off.
Lastly, if unsure as to how to proceed, reach out to me (your LO). I'll answer your questions and assist you in positioning your credit history and profile. That way you'll meet your goals and establish the necessary credit to obtain financing for your first home.
* Hoping to Buy a home in the Greater Chicagoland area? Contact me today! I'll put my 37 years of Mortgage experience and expertise hard to work on your behalf.
I can be easily found at:
Mortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI Licensed
American Portfolio Mortgage Corp.
Gene Mundt, Mortgage Originator, an Originator with 37 years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the greater Chicagoland region, including: The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL & WI.
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