Handle your credit like a boss

We all want to own a home and it appears that’s becoming harder and harder. I sold a condo to a client last year at $545,000 and just 5 days ago a similar condo sold in the same complex for $780,000. I’d like to point out this is a 2-bedroom condo which is insane because if you travel an hour away you could buy a HUGE house for that amount. Clearly San Jose is where everyone wants to be (including me).

Millennials get a bad rep for a lot of things, but study shows we have learned to save more than previous generations and are extremely interested in becoming home owners. 62% of us millennials want to improve our credit score that we check it every month as opposed to Gen-Xers and Baby Boomers. Around 33% of us plan to buy a home in the next 4-5 years and 24% plan to buy one within the next 3 years.

I get asked all the time how to buy a house, where to start, what you need? Millennials are really doing their homework in preparation for buying a home in the near future.

One very important thing I’d like to touch up on is CREDIT SCORE.

It’s only 3 digits but it’s a big deal. It can determine the course of your life. From a lender’s perspective (the person lending you the money to buy) your credit score indicates how likely you are to repay your debts in a timely manner.

Here are some valuable tips to help you get ahead of the game and establishing and preserving good credit score from Farnoosh Torabi, host of a popular financial podcast So Money.

WHAT THE SCORE MEANS TO YOU

Your credit score is a major personal financial indicator that ranges anywhere between 300 points (the lowest) and 850 points (the highest). Torabi suggests aiming for a score in the mid-700s and up. Higher credit scores will earn you the best interest rates on loans. Additionally, you should pay close attention to the major factors that can harm your credit score:

Paying bills late
Racking up too much debt
Applying for several credit cards within a short period of time

It’s important to monitor your credit score regularly. It’s an urban legend that requesting to see your score can harm it. “A so-called ‘hard inquiry’ from a bank or credit issuer can potentially ding your score, but only if there are multiple hard inquiries on your credit. Checking your score yourself is totally fine and I highly encourage it at least once a year,” Torabi adds. “And for what it’s worth, a new survey from Chase Slate¹ finds that Millennials are the best at reviewing their scores regularly, more so than Gen Xers and Baby Boomers.”

ESTABLISHING CREDIT

Every financial journey begins somewhere. Consider applying for a credit card to start building credit. “Just know that if you’re a credit newbie, you probably won’t qualify for a card with a very high credit limit. Banks and credit issuers want to be sure you can handle it, so they’ll probably start you off with a smaller limit,” says Torabi. She suggests applying for a card at your local credit union, where it may be easier for someone with little to no credit history to get approved. “No matter what card you open, it’s critical that you maintain a low debt balance and pay your balance off in full each month,” Torabi advises. Missing a payment heavily impacts your score—it can set you back 50-100 points, depending on how delinquent you are. Don’t let this scare you too much though. Time does heal all wounds (or at least some). Torabi explains, “If you’re 30 days past due, that’s not as severe as being several months past due and in collections, but it’s still going to take some time and regularly paying off your bills in full and on time to repair your credit.”

There are several other ways to build credit, too. Aside from credit cards, you can also establish credit with student loans, a car loan, and even a mortgage.

MAINTAINING GOOD CREDIT

Staying on top of your credit score is equally important as building one. Torabi recommends a couple steps for sustaining a good credit history without stress.

PAY YOUR BILLS ON TIME

Automate to avoid the stress of meeting payment deadlines. You can link your checking account to your credit card account, automatically paying off the balance each month. Torabi says, “This requires that you don’t overspend on the credit card and maintain enough cash in your checking account to cover the monthly expenses.”

KEEP YOUR DEBT BALANCE TO NO MORE THAN 30% OF YOUR AVAILABLE CREDIT LIMIT

This is extremely important to keep in mind, as this ratio is the second greatest factor in determining your credit score. If the sum of all your credit card limits is $10,000, aim to keep your total balance to $3,000 or less at all times. Maxing out your cards signals that you might be overspending and having financial troubles and your credit score can suffer, as a result.

Most credit cards and banks have mobile apps, which make it extremely convenient to check your balance regularly and on the go. Some may even offer to let you review your credit score once a month. Take advantage of all the tools and resources available to you. Proactively monitoring your finances and your credit is a smart way to manage your money and will ultimately be helpful when making a larger purchase, like a home. It’s important to remember that missteps, like late or missed payments, can stay on your credit report for up to seven years. Your credit history follows you around, and in the financial world, your credit score is one of the most important numbers attached to your name.