You can graduate high school, procure a prestigious college degree, recite a soliloquy from Hamlet, be able to calculate the Pythagorean theorem, yet find yourself in your mid-twenties and clueless about the practicalities of your financial life. If you have never made a late payment on a credit card, why would you ever be denied for a home loan? With bits and pieces of financial advice and information picked up along the way, you might think you have the ability to navigate the sometimes confusing landscape of your financial life, but find that you are lacking the big picture to help you put it all together.
One of the most important pieces of your economic puzzle is credit preparedness.
By understanding how to take on but manage debt effectively in order to preserve your ability to finance homes, cars, or additional school loans, you will be an important step closer to taking control of your finances.
Here are 6 tips to help you establish credit preparedness:
1. You need 3 trade lines of credit (credit cards, car payments, anything that reports to the credit bureaus) for a minimum of 12 months in order to
qualify for a mortgage. So debt, when managed properly, can be a good thing.
2. No matter what the credit limit is on your credit cards, make sure to keep your balance below 50% of the limit in order to avoid lowering your credit score.
3. Always avoid making a 30 day late payment, especially if you do not have a seasoned credit history. It is easier to ruin your credit than it is to establish good credit.
4. Ask your parents to add you as an authorized user to one of their credit cards. It will appear on your credit report as if you have had that credit established as long as they have used the card, boosting your credit score.
5. Cash is no longer king. Most people use credit to make major purchases, like homes or cars. Treat your credit like you would treat your cash - do not spend more than you can afford. Establish disciplined habits early.
6. Until September of this year, student loans that are deferred for 3 years were not calculated in your debt to income ratios while applying for a mortgage. However, be aware that now, even when deferred, they can affect the ratios that determine whether or not you qualify for a loan.
With these tips in your back pocket, you will be a step ahead when making major purchase decisions. Use them to establish your financial footprint and to create healthy credit habits (that will result in an optimal credit rating) in your future.
