How to Quickly Establish New Credit

When applying for a mortgage, lenders will review the borrower’s employment, income, down payment, and credit history. Even if the borrower’s credit scores are acceptable, many lenders will look at the length and amount of credit established. If the borrower does not have an established payment history, the loan may be denied due to lack … Continue reading “How to Quickly Establish New Credit”

When applying for a mortgage, lenders will review the borrower’s employment, income, down payment, and credit history. Even if the borrower’s credit scores are acceptable, many lenders will look at the length and amount of credit established. If the borrower does not have an established payment history, the loan may be denied due to lack of or insufficient credit. The following sources could be used to establish your credit history and generate acceptable scores to obtain a mortgage.

• Secure Credit Cards – This type of card is offered by large banks (available online), local banks, and credit unions. A secure card usually requires a $300 to $500 deposit to open an account. The servicers of the secure card will report the payment activity to the credit bureaus just like a standard credit card. This is a great way to obtain new credit. The last thing you want to do is apply at numerous lending institutions and pile up inquiries (which will lower your scores). You may need a co-signer if your credit scores are below 500. After six months of on-time payments with a secure card, ask the lender to upgrade your secure card to a standard card. When the card is upgraded to a standard card, ask for the credit limit to be increased. This will give you more room to keep your balance under thirty percent of the available limit, thereby maximizing your potential scores.

• Department Store Cards – These are a good place to establish credit, because they’re usually easier to qualify for. Pay your balance in full and on-time each month and then try applying for a regular bank credit card in six to twelve months.

• Authorized User Loans and Cards – If you are unable to open a secure card, look into becoming an authorized user with a relative. They may qualify for the loan or credit card and add your name as an authorized user. You can use the card, make the payments, and have the payments reported to your credit report. Just remember, the payment activity will also be reported on your relative’s credit report.

Once you have established credit, it is important that the balances on revolving cards are kept below 30% of the cards available limit. This will help maximize the credit scores. Make sure that all the payments are paid on-time. It is important to limit your inquiries for new loans or cards. When shopping for a new credit card, installment, or auto loan, research the requirements first. If you do not qualify for the loan, go to another lending institution. The last thing you want to do is lose points from credit pulls (inquiries). A large portion of your scores are calculated from your use of revolving credit, so while you are establishing new credit it is important that you do not close any existing cards. If you do so, you will be reducing your long-term available credit and likely lowering your credit scores. Usually, the credit bureaus will not differentiate between a credit card closed by the consumer or the creditor.

An available option to follow your scores would be to pay for a monitoring service to track your credit score progress. Your scores are not affected when you pull your credit report; they are only affected by lenders who pull your credit that may offer or extend credit to you. It may take 12 months to establish an acceptable credit history to obtain a mortgage.

The Economy Is Moving, So Are Interest Rates

The strong job’s report of May prompted economists to believe that Janet Yellen, the Chair of the Federal Reserve might follow through and increase interest rates this fall, the first time in almost a decade. Experts attribute the healthy job’s report, in part, to students temporarily entering the labor force during the summer break and new graduates entering the labor force for the first time in their respective professions.

The numbers were higher than expected, 280,000; the average in a solid economy should be about 200,000. According to experts, these numbers would help bring the unemployment rate down in a more consistent way.

Next week’s meeting of the Federal Reserve will bring a better outlook in the subject of interest rates, Yellen has hinted that she’s ready for an increase in September and experts suggest a second increase could also happen before the end of the year.

Higher wages and more jobs are two of the main factors for the Fed to consider a rate increase. Some economists and investors fear the decision could backfire, but agree that something must be done.

The President of the Federal Reserve Bank of New York, William Dudley told an audience in Minnesota that “Inaction could force the Fed into a stop-start monetary policy”, he added, “Very low interest rates can also cause distortions in financial markets that threaten stability, though instability is not apparent now”.

Other experts agree and also say that inaction from the Fed could push the U.S back into another recession.

Dudley was very careful when addressing the subject of the job market, saying that he’s uncertain about whether the job market will continue to grow at the impressive rate shown during the first five months of 2015.

Economist’s eyes will be focused on the June 16 – 17th meeting of the Fed, when they hope to have more answers about what direction the US economy is taking and if the Fed will take action and move forward with an increase of the interest rates.

Interest rates changes will affect the real estate market so buyers and sellers will have to think twice before committing to the next real estate transaction.

Interest rates changes may not change the qualifications, but will give us a great opportunity to save a substantial amount of money when buying real estate. It will still be difficult to qualify for home loans. Homeowners, stay tuned and let’s hope for the best.

Yanni Raz is a hard money lenders and trust deed investments specialist as well as a blogger and contributor. The goal is to educate other real estate investors before they are getting into bad real estate deals.