Credit, The missing piece of credit recovery

As I meet with many wanna-be-homeowners in our new tightened credit standard world, something is recurring often so I thought I would try to shed some light on it. Since a lot of people have suffered financial setbacks in the down economy over the last few years, many have had problems or issues with credit. I am happy to review and offer advice as to how to put yourself in the best position to recover quickly.

Here is the mistake I see. People have a problem, they stop using credit altogether. While logically, one would think if you owed NOTHING to ANYBODY, that would be good. But not true. Mortgage lenders want to see that not only are you past your problem, but you now are able to handle credit responsibly before they give you a whole lot of it for a house. Kind of an industry standard is three credit items on your report showing no lates for 12 most recent months. Many potential buyers have cleaned the slate, but failed to establish new credit.

If you have trouble with this, go to a credit union or go online and get a secured credit card. With this card, you put up the money and then your credit line is that amount of money. DO NOT run it too the max. Use it and pay it on time or early EVERY month. Don’t pay it off completely every month. If you do, its considered like a cash account and not credit. Leave the balance under 10% of the maximum credit line. If you can, get three credit cards ( remember needing 3 references for 12 months?), one mastercard, one visa, and one discover). Or if you have a car loan, two credit cards. And never ever be late.

So many people I meet with think they are ready to go because they have paid off the debts that caused the problem. This is the other half of the battle.

If you are opposed to the use of credit cards, use them just enough to establish a history. You don’t have to go crazy. You don’t have to buy things you don’t need to establish credit. Groceries and gas can be purchased. Be careful !!!! BUT DO IT !!! Then your credit scores and ability to buy will improve much much faster !!!!