Building Good Credit

One of most important things one can do for themselves, is create good credit and take it slowly instead of jumping in and trying to do build it over night. It does not happen like that anyway. It takes a little time to build credit.

You have no credit, no scores, nothing to give you a credit rating...you are moving out and your parents have signed the lease on the apartment.....here are some things to think about and this is how you can do it:

• get your cell phone in your name
• have your name on your apartment lease
• cable tv
• have the utilities in your name
• have your name on any account with your parents *if allowed
• open up a checking account if you do not have one

There are credit card companies which will give $300 balance until you build some credit. Having worked in mortgage lending and been an underwriter and reviewed thousand of people's credit; I am not one to promote credit card debt. It can be devastating and ruin your credit unless you are disciplined and pay off the balance each month. It is a way to build credit but not necessarily the best way.

Personal loans at a bank are one form of building credit if the bank has this kind of loan and initially usually someone will have to sign with you. But, these are not revolving loans, they are paid back in amortizing principal in interest payment and will payout in usually 12, 24, 34 months. Not all back make "personal loans" any longer without collateral. Something to secure the loan. If you have sufficient collateral, you might not need a co-signer...it will depend upon the banker and where you live. In the country sometimes bankers who know who you are, or your parents are willing to help and give you a chance. In the city, it is not that easy.

In mortgage lending we had the ability in some cases to build a non-traditional credit basis such as the list above. Phone bills, rent, utilities, checking accounts and any account paid on that is not reported to the bureaus.

Installment accounts are a very good way to build credit. If you can get parents to co-sign and there by build credit with them when you pay the payment. It will go on your credit report as well as your parents. It is imperative that anyone who chooses to do this; make sure they pay the installment account; be a vehicle etc.

FHA guidelines will allow in some circumstances for a parent to qualify on a mortgage loan with someone who has only traditional credit. This means that the parent is actually responsible for the mortgage loan just like the borrower; as their credit, assets and income are used to qualify. A mortgage loan is definitely a way to build good credit.

I know that it is hard this day and time for those who have lost their jobs and are suffering from the economy. It is however, so important that all accounts whether revolving, installment or mortgage are paid prior to or on the payment date on the statement or coupon. It is never a good practice to let an account go until the last minute as then you are jeopardizing your credit and could be 30 days late and this is what makes your credit score change for the worse. Normally one or two late payments on a revolving charge may not kill your credit but a lot of them will. A late payment on installment or mortgage accounts are more devastating than the aforemented, if it is only minimal. It is never "good practice" to be late on any payment, if at all possible.

Credit card balances should be kept low to moderate, if not paid in full each month. When you have high balances which are the same amount as your line of credit, it has a negative effect in your score. How many open accounts makes a difference in your score and if you have excessive credit accounts it will result negatively also. There should be a happy medium with your credit. All payment paid as agreed and all within your financial means.

• Excellent credit means that you have all of your account on your credit report with  0 x 30 days late.  Your credit score somewhere in the range of 700-800. 
• Good credit means that you have minimal credit issues on your report that have not effected your score and it ranges anywhere from 660 to 700. 
• Satisfactory credit means that you have have minimal credit issues and your credit score has a range from 620 to 660

If you have had a bankruptcy, it again, takes some time, effort and someone willing to take another chance on you to build back credit. If you have reaffirmed some debt; mortgage, car etc., this can count toward helping re-establishing your credit.

Normally what mortgage lenders like to see is at least 2 to 3 new re-established accounts that have been paid for at least 12 to 24 months without a 30 day late. If you have rent or mortgage they want to see at least 12 to 24 month without a 30 day late before entering into a mortgage loan again. It also depends upon your credit score. Mortgage and rental late payments are negative, big time and does not present quality credit.

A bankruptcy will stay on your credit report for 10 years. That does not mean that you cannot get credit but it does affect the decision. It is still finding someone who will take a chance that you have recovered from the situation that caused the bankruptcy in the first place. After forclosure, it is normally 3 years before you will be considered for another mortgage.