Building Credit 101: Tips for Recent Grads who want to live in Brickell, Miami
Building Credit to Buy your First Condo in Brickell
You finally graduated… BRAVO!! Now you setting up new goals; getting a good-paying job, renting a nice unit, and in a few months or a year maybe buying a fabulous condo in Brickell. You want to enjoy your success and meet young people as yourself… FANTASTIC PLANS!!!
BUT… have you ever thought about what you need to buy that fabulous condo in Brickell?
Saving for the down payment is just one of the steps that you have to take. While you do that, YOU ALSO MUST BUILD YOUR CREDIT but it could be hard if you’ve never had a credit before. Most lenders would like to see at least one year of your credit history before you can qualify for a mortgage.
START BUILDING YOUR CREDIT
1. Get your monthly rent payment reported to the credit bureaus.
Monthly Rent is one big payment that you do every month. What if you could use it to build your credit? Rent-reporting services take a bill you are already paying and put it on your credit report, that may be enough to get a loan or credit card that firmly establishes your credit history for all lenders.
Note that your landlord may need to verify your rent payments. Some services may not be able to report your payments if your landlord won’t verify.
There are several ways to get records of your payments in front of lenders. Among them:
Rent Reporters: There is a one-time enrollment fee of $59.95, which includes up to two years of reported rental payments, then the service is $9.95 per month. It reports to TransUnion.
Rental Kharma: Initial setup is $40, and then the service is $9.95 per month. During enrollment, you can report payments made in the previous 24 months for a fee of $5 per month reported. It reports to TransUnion.
RentTrack: The service costs $2.95 a month (although some landlords pay the fee and offer the service free to tenants). It reports to all three credit bureaus. A look-back of up to 24 months is available on your current lease.
ClearNow: This service debits your rent from your checking or savings account. There’s no cost to tenants, and, if you opt in, payments are reported to Experian.
PayYourRent: Variable fees, depending on how rent is paid; in some cases the fees are paid by management. It reports to TransUnion and Experian on an opt-in basis.
ERentPayment: Tenants may sign up for this rental payment service only if the landlord is registered. There is a $3 transaction fee for processing electronic rent payments; the landlord may split that cost or require that the tenant pay it. Reports to all three credit bureaus. Two years of previous payments may be reported to Equifax and TransUnion, but not Experian.
2. Apply to get a Secured Card to build your credit.
These cards work just like a regular credit card, except that you place a security deposit with the credit card issuer to obtain one. They typically require $200 or more for the deposit, and this amount becomes the credit line for the account.
3. Don’t go crazy
Building credit is not a one day task. Do NOT apply for every credit card that you receive on the mail that says that you are pre-approved. If you don’t have credit history, they will deny you or give you a card for little amounts that really don’t do any good to your credit.
Applying for several credit cards is NOT a solution, in fact having too many credit cards could negatively affect your credit even if you always pay on time or have no balances.
4. Building credit with stores credit
Store credit is a perfect way for credit building. If you need a new TV or furniture, request credit from the store even if you have the money to pay it off. Most of them give you $0 interest for the first 2 years. Get the credit and pay it in installments over a year or two. They will be reporting you positively every month.
All you have to do is open a saving or checking account, deposit the money, set up an automatic payment and forget about it.
5. Ask your parents
Your parents or any family member willing to help is another easy and quick way for building credit. Ask some one with a long and good credit history to make you an authorized user on one of their credit cards. But be careful, if you are an authorized user and the principal holder fails to make payments on time, it will hurt your credit in a negative way so make sure you ask someone who really knows how to handle credit.
These easy steps will help you building credit and eventually to buy that great condo in Brickell.
IMPORTANT THINGS TO KEEP IN MIND WHEN BUILDING CREDIT
- Get different types of credit. 10 credit cards won’t do much benefit, neither will do having a card of every store that you buy from. It is a better to have 2-3 credit cards, 1-2 store credits, rent reporting, car payment reporting, etc. These are different types of credit and validates much better your ability to manage your finances.
- Always pay ON TIME. This is key! it takes a year to build a good credit history but only 2 months to destroy it. On the top of that lenders are more willing to take a risk with someone with almost no credit than with a someone with bad credit history. Late payments show either that you don’t earn enough money to pay your obligations or that you are not responsible enough to manage your finances properly and therefore you become an un-elegible candidate for a loan.
- Maintain your credit utilization low. You should use a maximum of 30% of your credit limit and try to pay it off before the end of your cycle. For example, if you have a credit card with a $1000 limit, you shouldn’t be using more than $300 per month. That will keep your score high.
- Don’t open and close accounts too often: Unless your credit card is charging you an annual fee that is too high, keep it open. Closing and opening accounts lower your credit score.
