Sometimes The Opposite Of What You Think Is True

 Every year when I teach about Alexander Hamilton's Financial Plan, I have to explain why he wanted the newly formed United States to borrow money. I have to explain that credit is not a dirty word and it actually means that people believe you can pay the money back enough to loan you the money in the first place. It's an odd concept to teenagers because we have done a good job as parents teaching them to save, save, save for what they want and that credit is BAD. What we should be stressing is that too much credit is bad BUT so is too little. You need credit to get credit.

I owe nothing but student loans. Now, my student loans are pretty massive but that's a story for another day. I paid off everything when student loan payments were paused. I drive an older car. I rent. I paid off my credit cards.. You would think this is an awesome thing... it's not when you want to make a big purchase like say... a house. According to the bank, you need multiple credit streams and the easiest way to raise your credit score is... WAIT FOR IT.... to get more credit... How crazy is that?

I don't use my credit cards enough. I don't have multiple credit cards. I pay off the balance every month... Ummmm... These are all true statements and apparently I needed to adjust these habits to up my chances at a mortgage and a better mortgage rate. TRUTH from more than one source... Okay, so what does that mean?

Even if you do not want to buy a house or a car or whatever, you need to check your credit score. You can do this for free and without a hit to your score by signing up for one of the free credit monitoring sites, like Credit Karma. You want as high of a score as you can get before making a big purchase. Credit Karma breaks down the factors that comprise your credit score. For example, it does matter how much you owe BUT it also matters how much available credit you have and for how long you have had certain accounts. It does indeed lower your score when someone checks your credit, so avoid that. Go check your credit score. You are trying to get above 700 or better for a home loan. I actually learned a lot about credit scores and how they work and I worked at raising my score this past year. I learned that I needed to actually use my credit cards and then, I learned to leave about $20 on them until the credit cycle restarts so the credit reporting services know they're being used. Good credit is more complicated than I knew. Like most things in life, you need to work at it.

So, go check your credit score. Fix anything that is fixable if your score is lower than you want. Change your habits, even if they seem like the opposite makes more sense. It may take a few months for it to increase. But....like most things in life, if you put in the time and effort, it pays off. 

Meet me back here tomorrow and we will discuss how to get pre-qualified to buy a house. We are almost to the fun stuff of house hunting.