So, if you’re looking for the best ways to build good credit, you’ve come to the right blog. Here are our top seven tips. Let’s get into it, shall we?

1. Knowledge is power.

Maybe you signed up for a store’s charge card to get that extra 20% off one day. Maybe you took out a car loan to celebrate your first adult job. And maybe, just maybe, you have a few late payments hiding amongst the skeletons in your proverbial credit closet. We get it—looking at your own credit score and the history attached to it can be frightening for some people. But if you don’t know what you’ve got, you won’t know what to improve. Our advice? Get familiar—not only with your own credit history, but with how credit works in general. 

First, you’ll want to pull a copy of your credit report from a reputable, reliable source. Any one of the three major reporting agencies (Equifax, Experian, or TransUnion) ought to do. Everyone in the United States can get six free credit reports from Equifax per year until 2026. Per the Federal Trade Commission’s Consumer Advice section, that’s on top of the report you’re able to get for free each year from the three aforementioned agencies. All you have to do is visit AnnualCreditReport.com to get started.

After you’ve pulled and reviewed your credit report, you’ll want to keep this in mind: Each reporting agency calculates your score differently, and not all creditors report to all three bureaus. While they may vary slightly, they all follow the FICO scoring method, which uses predictive data analytics to generate an accurate credit score. That said, they all consider things like account age, payment history, balances, and the number of accounts when generating your score. 

2. Error. Error. Error.

While the nation’s leading credit reporting agencies use digital tools and analytics to read your data and generate a score, those tools are often operated or read by people. And let’s be honest, people make mistakes sometimes. Lenders and creditors are no different. 

Should you obtain a copy of your credit report and discover an error or two—maybe an amount owed is higher than you thought, or maybe your address is wrong—you’re more than welcome to dispute those errors. In fact, you’re well within your legal right to do so, since the Fair Credit Reporting Act promotes the accuracy, fairness, and privacy of consumer information held by credit bureaus. It gives you the right to dispute errors or inaccuracies, have them investigated, and (hopefully) get them corrected. 

3. A low balance is a good balance, but no balance is better.

Hands down, one of the best ways to build good credit is to keep your balances low, or flat-out non-existent. Hey, we understand—sometimes you have to use a credit card to get by until the next paycheck, and sometimes you’ve gotta take out another student loan to cover a semester’s tuition. Those balances play into your “debt-to-income” ratio, or DTI. 

As a mortgage lender, we and other companies use your DTI as one way to gauge your readiness for, and ability to pay off, a home loan. Different home loans and programs have different DTI requirements, but generally speaking, a higher DTI signals greater risk for the lender. We want to know you can pay back what you borrowed, and having to pay off a bunch of other accounts may get in the way of that ability to repay. 

How can you lower your DTI? Lower your balances. There are a number of ways to approach this, but one of the most popular methods is sometimes referred to as “the snowball method,” where you pay off the smallest balances first to free up funds for later payments on larger balances. Even getting a small balance to zero is a win, so don’t hesitate to get started as soon as you’re able.

Want to learn more about DTI? Check out this blog to get all the details.

4. The best time is on-time.

Of all the things that can hurt your credit score, late payments are near the top of the list in terms of impact. That’s because payment history is a major player in determining your credit score, and even one missed payment can cause your previously stellar credit score to go sideways. The later your payment, the greater the impact.

• 30 days late is usually seen as a minor mistake.
• 60 days late is a red flag. 
• Once you hit 90 days late or more, creditors start exploring their options—one of which is sending your account and balance to a collection agency.

Of all the things that can hurt your credit score, late payments are near the top of the list in terms of impact.

Getting sent to collections won’t just damage your credit, it’ll drive you up a wall and have you ready to do whatever it takes to make them stop calling you. So, whatever you do, try not to fall behind. 

An easy way to help keep you on track? Auto-pay. Obviously you’ll want to make sure you’ve got cash in your account to cover every payment, but if you’re someone who frequently forgets to make payments (even minimums), this is a no-brainer. 

5. Budget best practices.

For some people, remembering to make payments isn’t the problem. It’s having enough money in the first place.

While living by a budget may not have a direct impact on your credit report, per se, it will lead to better financial habits. That trickle-down effect should then find its way to your credit report, because you’ll have budgeted appropriately to pay down (or pay off) your balances on time, every time. 

Budgeting is a discipline, but it’ll have a long-lasting positive impact on your life if you stick with it. Some folks need a little help with accountability, so ask a friend to tell you “no” next time you want to put a new pair of shoes on that credit card. And while there are apps abound to help keep track of your money and where it’s going, sometimes you can get away with a simple spreadsheet that documents when your money is coming in and what it’s going to. We’re talking simple addition and subtraction, folks. Budgeting is a discipline, but it’ll have a long-lasting positive impact on your life if you stick with it.  

Budgeting is a discipline, but it’ll have a long-lasting positive impact on your life if you stick with it.  

6. Live within your means. 

Just because credit can help you buy things you wouldn’t typically be able to afford, that doesn’t mean you should depend on it. A smarter way to get a handle on your finances is to live frugally and well within your means. 

If you want to use a credit card for daily expenses and bills, fine, no one will stop you. We recommend treating it like a debit card instead of a credit card, though. If you rack up expenses, pay them off in full each month with your income. That way, you reap the rewards (literally, in some cases—hello, cash back) but maintain good standing with a low or zero-dollar balance. 

Alternatively, consider going on an all-cash diet. Once you’ve got a habit of responsible spending, then you can get back into using your credit card. 

7. Age is more than just a number.

Everyone loves a new pair of shoes, but when it comes to credit reports, the older your account, the better. Earlier, we mentioned credit bureaus keeping track of how long your accounts have been active. That’s where this piece comes into play. 

An older account, especially one that shows consistent on-time payments and a history of keeping a low balance, will do wonders for your credit score. On the other end, new accounts can temporarily lower your score and will impact the average age of your credit profile. One account you’ve held in good standing for 10 years is better than several new accounts you’ve opened up back to back over the last three years. Each new account lowers the average age, which is a major factor in your credit score. 

An older account, especially one that shows consistent on-time payments and a history of keeping a low balance, will do wonders for your credit score.

That said, opening new accounts is still key to building good credit. A blend of accounts shows lenders and creditors that you’re able to balance different types and amounts of debt. The secret is to keep those older accounts open, even if you’re not using them all that often anymore. 

The best way to build good credit? Be responsible.

If you’ve ever wondered how to build good credit, now you’ve got the goods. Take this information and make your credit work for you, not the other way around. And if you know someone else who wants to know how to build good credit, be a pal and share this blog.

The post The Best Ways to Build Good Credit appeared first on Cardinal Financial.

The good news is that while some credit challenges may not be your fault, there are a few things you can do about them. Let’s break down what you can control when it comes to building the credit you need to become a homeowner.

Which credit challenges have the biggest impact on my score?

Factors that affect your credit score fall into five categories:

1. Payment history
2. Amount owed
3. Length of credit history
4. Credit mix
5. New credit

The majority of your credit score is based on your payment history and how much of your credit you use, so these are usually the categories where most borrowers run into credit challenges.

What steps can I take to handle credit challenges?

No matter which credit challenges you’re affected by, there’s no denying how much a low credit score can set you back in your homeownership journey. Some aspects of your score may be beyond your control as an individual, but we rounded up some key steps you can take to get your credit score as healthy as it can be in spite of any external factors.

Check your credit report

You can request your credit report once a year for free from each of the three major credit bureaus (Equifax, Experian, and TransUnion—follow the Federal Trade Commission’s instructions here). Once you receive your report, look for any errors that can be disputed and potentially removed from your record. These could include:

• Incorrect personal information, like your name and address
• Incorrectly listed bankruptcies, foreclosures, and other negative marks on your record
• Accounts that aren’t yours
• Accounts that are yours but aren’t listed in the report
• Duplicate accounts
• Accounts listed as closed that are actually open, or vice versa
• Fraudulent activity

If you find incorrect information on your record, you can dispute the errors with the credit bureau you received the incorrect report from.

Make payments on past due and/or high interest accounts first

Chances are, you won’t be able to pay off all your credit at once (and you shouldn’t—no credit isn’t much better than low credit). For the biggest boost to your credit score, prioritize making payments on accounts that are past due or have a higher interest rate.

Limit hard inquiries

Hard inquiries come from lenders when you apply for a new line of credit or loan. So, if possible, avoid opening new lines of credit if you’re trying to repair the credit you already have (unless your score is low because you don’t have enough credit mix, in which case opening a new credit account could boost your score).

While you’re at it, try to avoid closing lines of credit just before applying for a home loan. It’s a bit surprising, but your credit score can be dinged for closing accounts too. That’s because when you close an account, you reduce the amount of credit available to you. This means the credit you’re using will automatically become a larger percentage of your total available credit

Can I buy a house with a low credit score?

If you had to have a perfect credit score to buy a house, we’d all be renting. While you may have less flexibility than a borrower with a higher credit score, there are a lot of great financing options you can still take advantage of:

1. FHA Loans
   Backed by the Federal Housing Administration, you could get approved for an FHA loan with a credit score as low as 580.
2. VA Loans
   If you’re a veteran, active-duty servicemember, or eligible surviving spouse, VA loans offer a lot of exclusive advantages including low interest rates and approval with credit scores as low as 580.
3. USDA Loans
   These loan types can be used for eligible rural properties by low to moderate-income households. They may be geographically limiting, but there are no fixed credit requirements for USDA loans. The limit will be set by your lender.

If possible, you should aim to make a higher down payment on your mortgage to offset your credit score. Another option is to get a cosigner for your mortgage to provide your lender with added security.

If you’re a first-time home buyer, you could also qualify for financial assistance from the Department of Housing and Urban Development. You can find more information on how to qualify here.

What will homeownership look like for me while I’m dealing with credit challenges?

Long (but hopefully not too long) story short, a low credit score isn’t the end of the line when it comes to buying a house. A good lender will look at the full picture and work with you to build a home loan that meets you where you are, and sets you up to grow your finances for the next step in your homeownership journey. When you’re ready to explore your options, we’re here to help.

Some credit challenges may be out of your control, but there are still steps you can take to cultivate your credit score and qualify for the home financing you deserve.

The post Common Credit Challenges and What You Can Do About Them appeared first on Cardinal Financial.

Feared by many and flaunted by some, credit scores are a necessary evil when it comes to buying a house. But your credit score isn’t just for getting a mortgage—it paints an overall financial picture. If you didn’t know, your FICO credit score is a number between 300 and 850 that represents the likelihood of you being able to pay back a loan. The higher your score, the higher your creditworthiness and vice versa.

What Affects Your Credit Score? Here’s What You Need to Know.

So what does your credit score need to be to buy a house? If only it were that simple. Like so many others, the answer to this question depends on a number of different factors. There’s no set credit score that will ensure your ability to secure a mortgage loan. But if you play your cards right, your credit history and score should be good enough to where you won’t have a problem getting a loan for your home.

There’s no set credit score that will ensure your ability to secure a mortgage loan.

Just to be on the safe side

As I said earlier, it’s never as simple as “my credit score needs to be (insert number here) for me to be able to buy a house.” But if you insist on a numerical value, anything above 660 is generally accepted as a “good” credit score and shouldn’t cause you any problems when you’re applying for a loan.

The good thing is, there’s a plethora of options for people who fall short of that 660 mark as well. Depending on how low your credit score is, the better option may be to hold off on buying a home until you can shore up your credit report to get a better rate on your mortgage. If you’re not sure, talk to a loan originator for a better picture of whether you should pursue a mortgage with a low credit score.

The Credit Scale

What’s the credit scale and how does that impact me getting a mortgage?

Since you asked, here’s an approximate breakdown of the different tiers of credit scores and how they’ll affect your mortgage prospects. It’s important to remember that every case is different. This scale is not law and you won’t truly know where you stand until you talk to a mortgage professional about your specific situation.

• Excellent (760–850): Smooth sailing. Your credit score will have no impact on your interest rate. You will likely be offered the lowest rate available.
• Very good (700–760): Your credit score may have a minimal impact on your interest rate. You could be offered interest rates 0.25% higher than the lowest available.
• Good (660–699): Your credit score could have a small impact on your interest rate. This means rates up to 0.5% higher than the lowest available are possible.
• Moderate (620–660): Your credit score will affect your interest rate. Be prepared for rates up to 1.5% higher than the lowest available.
• Poor (580–620): Your credit score is going to seriously affect your interest rate. You may be hit with rates 2%–4% higher than the lowest available.
• Very Poor (500–580): Now you’re in trouble. If you are offered a mortgage, you’ll be paying a very high rate.

Depending on how low your credit score is, the better option may be to hold off on buying a home until you can shore up your credit report to get a better rate on your mortgage.

You’ve got options

How do I know what products to look at based on my credit score?

Good question. Our products page offers a brief rundown of the basic features of every loan we offer and what credit scores you’ll need to qualify for them. You can still check out the products page for a deeper dive into the ins and outs of each loan, but here are some highlights of our different program options.

Conventional

• The most popular loan in the country and the epitome of a basic loan.
• Put down as little as 3% for fixed-rate loans.
• Credit scores as low as 620 accepted.

FHA

• For people who need a little credit flexibility.
• Put down as little as 3.5%.
• Credit scores as low as 550 accepted.

USDA

• For people looking into rural properties.
• 0% down payment.
• Credit scores as low as 580 accepted.

VA

• A loan for veterans or active service members.
• 0% down payment.
• Credit scores as low as 550 accepted.

Jumbo

• A large amount loan for people looking into luxury homes.
• Put down as little as 10%.
• Credit scores as low as 660 accepted.

Let me reiterate that the terms of these mortgages are not set in stone. At Cardinal Financial, every loan is crafted specifically to fit each borrower’s unique financial picture. While these snapshots provide a general overview of our products, there may be some wiggle room once a loan originator knows the whole of your financial situation.

So now what?

Now that you’re a credit guru, you should have a better idea of what type of credit report it will take to qualify for a mortgage. You know the different types of mortgages and you know what’s generally considered to be “good credit,” but do you know your credit score? There are plenty of websites you can visit to get a free credit report. Be careful though, some sites offer Vantage credit scores but most top lenders only accept FICO credit scores. Be sure to know which one you’re looking at or you could get blindsided when it comes time to talk to a loan originator.

If you still have questions, don’t hesitate to call us! We’re more than happy to help you understand everything you need to know as you work toward homeownership!

Did you learn something new about credit from this blog post? We want to know! Tell us on social media!

The post What Does My Credit Score Need to Be to Buy a House? appeared first on Cardinal Financial.

Credit score. It’s a topic that’s widely discussed in the financial industry but it’s also one that’s hazy or even confusing to many people. Have you ever wondered just how well you know what affects your credit score? Whether you’re a first-time home buyer who’s unfamiliar with the rules of credit scoring or a weathered mortgage borrower who could use a refresher, read on to learn a thing or two about what affects your credit score.

What is a credit score?

Your credit score is your credit activity and history represented as a three-digit number. Credit scores can range from 300 to 850, and the higher your score, the better. Your credit score tells a lot about your financial history. Types of credit that can be reflected in your score include auto loans, home loans, student loans, credit card debt, etc. Your credit score paints a picture of how responsible you are at credit management and expresses your financial stability in a simple figure. It helps lenders determine your creditworthiness—your ability to pay back the money you borrow.

Who generates my credit score?

You may have heard your credit score being referred to as a FICO score: FICO (which stands for Fair, Isaac, and Company) uses predictive data analytics to generate the most accurate credit score. This helps lenders predict a consumer’s behavior. Using the FICO scoring model, Equifax, Experian, and TransUnion—the three major credit reporting agencies (CRAs)—generate your score based on your credit information. You may notice that your score is not exactly the same across all three CRAs—don’t worry, this is normal. Not all lenders and creditors report to all three CRAs, so although each score varies slightly, when combined, they represent your total credit score.

Why do mortgage lenders care about credit score?

Credit score is very important when it comes to mortgage lending. We look at a borrower’s credit score to see if they have a track record of paying bills and repaying loans on time. Like we said, the higher your score, the better—but also, the higher your score, the more qualified you are to borrow again, and the more favorable terms you’re eligible for. Conversely, the lower your score, the less favorable the terms available to you may be. If your score’s too low, you may not qualify for a loan at all.

What affects your credit score?

So, when applying for a mortgage—or any type of loan, for that matter—what affects your credit score? Let’s take a look at the five major factors to help you understand just what affects your credit score.

The length of your credit history

This aspect of your credit score shows how long you’ve been using credit and makes up 15% of your score. A long history of on-time payments is excellent—you don’t want to have a long history of late payments as this can negatively affect your credit score. Haven’t had credit for long? A short credit history isn’t a problem as long as it shows you’ve made payments on time.

The variety of credit

In determining what affects your credit score, lenders also look at how many different types of credit you’ve opened (sometimes called your credit mix). This accounts for 10% of your total credit score. Do you have auto loans, an existing mortgage, student loans, credit card balances, or another type of credit? How many of these do you have in total? Answers to these questions can affect your credit score. A variety of credit is good, but you don’t need one of every type of credit in order to have good credit.

Your payment history

Accounting for a whopping 35% of your credit score, payment history is a major component. It may not come as a surprise to you that a history of on-time payments is a good thing. It helps prove that you can be trusted to pay back the money you borrow. Have you ever received mail from your bank or credit card company stating that you’re eligible for a higher credit limit? That’s usually a good indication that you’re responsible with credit and you generally make payments on time.

As part of your payment history, your credit score can be affected by late payments. If you’ve paid late, how late? Have any unpaid bills gone to collections? If so, this might tell a lender that you don’t have plans to pay them back if you borrow from them. In addition, special cases such as bankruptcy or foreclosure can have adverse effects on your credit score and may even disqualify you for a mortgage. (Good thing Cardinal Financial offers a loan program to help borrowers with derogatory credit events qualify for a mortgage.)

Your remaining balance

When you think about what affects your credit score, probably one of the first things that comes to mind is how much you owe. That makes sense, because this makes up 30% of your credit score. It’s not just about how much you owe in total, but how much you owe on each line of credit. (How much you owe per type of credit matters too.) This factor also considers how much of your total available credit you’ve used. Remember, it’s best to demonstrate an ability to repay, so the lower your remaining balance, the better.

New credit you’ve taken on

The last 10% of your credit score is determined by the new credit you’ve taken on. This includes the types of new credit you’ve opened, how many lines of new credit you’ve opened, and if you’ve opened multiple lines around, roughly, the same time. Several new lines opened in a short amount of time may indicate that you’re about to take on a lot of debt, which may threaten your chances of loan approval.

Let’s say you’re planning to buy a home. You take out a credit card at Home Depot because the house you’ve got your eye on needs some renovation, you take out another credit card at Sears because you want to buy some big-ticket appliances, and you open up another line of credit with Art Van Furniture to finance a brand new bedroom set for this new home. When a lender sees this type of activity, they may think you’re getting ahead of yourself—you’re putting items on credit that you can’t afford before you even buy the house they’re intended for. If you just opened up a lot of new credit, a lender will see it and may think you don’t have the money to pay for all of these things—and their loan is one of them.

We hope this article helps you figure out what affects your credit score. This blog post is not intended to provide credit or financial advice. We recommend you consult legal counsel or a financial advisor when making decisions that may affect your credit.

Did you learn something new about credit scores from this article? We want to know! Share this on social media!

The post What Affects Your Credit Score? Here’s What You Need to Know appeared first on Cardinal Financial.

They said it couldn’t be done, but the same Millennials who analysts deemed destined for a lifetime of renting are not only coming around to the idea of homeownership, they’re powering the housing market!

According to the NAR’s 2017 Home Buyer and Seller Generational Trends study, Millennials were the largest group of home buyers (34%) for the fourth straight year. A far cry from their public perception as supermobile serial renters. Millennials may be the youngest generation of homeowners, but they’re also the largest and the most diverse. There are 83.1 million Millennials nationwide, and 44.2% are part of a minority race or ethnic group, meaning the increase in Millennial home buyers doesn’t just signify economic progress, it shows social progress as well. There’s been a wide disparity in homeownership rates between whites and minorities for more than a century, but with the upswing in Millennial homeowners, that gap is starting to close.

Why is this important?

The uptick in Millennial homeowners is indicative of the continued “integration” of communities. For years, minorities were barred from purchasing homes in many neighborhoods through government-enforced policies. Banks were legally allowed to deny federal loans to minorities and racial covenants in certain neighborhoods prevented homeowners from selling their houses to people based solely on the color of their skin. Legal discrimination denied minorities access to basic necessities that many people take for granted, and the effects of this discrimination are still visible today. The diversity of the Millennial generation will only expedite the diversification of American communities and provide access to resources that were denied to minorities for so long.

Along with the rise in Millennial homeownership comes a rise in economic growth and wealth-building opportunities for minorities. Many minority families lack the generational wealth that many white families have accrued over time due to the systemic discrimination of the 20th century. Owning a home plays a huge role in a family’s economic growth and can be a method of generating wealth to pass down to future generations. The gap in wealth between whites and minorities is even larger than the gap in homeownership, but Millennial buyers are seeing to it that these numbers gradually come closer together.

Focused on the future

For all the negative press Millennials get, they deserve some credit for unapologetically moving at their own pace. Sure, they were notably slow to enter the housing market, but they’re also marrying and having children later than past generations. If anything, the delay in home buying has given Millennials time to get their lives together, start families, and save money before taking on such an important investment. Their sudden interest in homeownership has paid dividends, not only in the economy, but in society as well. Throughout history, minorities haven’t been afforded the same opportunities as the majority, but Millennials are looking to even the score.

Are you a Millennial who’s thinking about getting on board with the home buying movement? We’d love to help! Give us a call and let’s get started.

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