How to build credit?

[Mosaud1998]

I was having a conversation with one of my coworkers about buying a house/townhouse in 2-4 years.

I told him my credit score is in the 750s+ but it's all just from credit cards (I've had my credit card for 3-4 years. I'm 23).

He said that it would be hard for me to get approved for a house loan and such since I have light credit.

Not sure if that's true or not but what's a good way to build legit credit? Obviously, I'll have to take a loan out. I've never had a loan. Brought my BMW cash 2 years ago.

Any suggestions would be helpful.

[JP10]

You'll be fine. Take out a loan if you need to, but don't waste your money on interest just because you want to build credit. If you continue to build your assets (to ensure you have proper down payment funds) then the home loan approval will be just fine.

[6oclockshadow]

1. Save up at least a 10% down payment for your purchase--more is better.
2. Have emergency savings of at least 9 (12 or more is better) months of all expenses (exclusive of your down payment fund) --Lenders like to know that you have a plan B if you lose your income.
3. Take out a personal or auto loan; pay it on time.
4. If your company has a 401k plan, use it. It's balance won't be used to qualify you; but the lender likes to see a financially responsible individual.
5. Increase your credit limit; but never spend to the limit--
try to keep the ratio of your outstanding (revolving) credit to credit available to you under 25%, (less is better)

Your FICO score is not the problem for lenders-looks like you'd qualify with 750+. It's your lack of credit history and variety of credit.


Good luck!

[Mosaud1998]

Originally Posted by JP10

You'll be fine. Take out a loan if you need to, but don't waste your money on interest just because you want to build credit. If you continue to build your assets (to ensure you have proper down payment funds) then the home loan approval will be just fine.

That's what I am thinking. I was thinking about selling the E90 and buying this 19 440.

https://www.laurelbmw.com/certified/...e4cd1105f7.htm

[Tommy-G]

Originally Posted by Mosaud1998

That's what I am thinking. I was thinking about selling the E90 and buying this 19 440.

https://www.laurelbmw.com/certified/...e4cd1105f7.htm

If you are thinking of buying a house soon, do not make any big purchases or new loans until you close on the house. It looks bad to creditors

[6oclockshadow]

Originally Posted by Tommy-G

If you are thinking of buying a house soon, do not make any big purchases or new loans until you close on the house. It looks bad to creditors

I think he has a 2 to 4 year time frame, so ideally this loan would be paid off or close to it, before the mortgage application.
But yes, try not to have your credit report pulled within a year of the mortgage app.

Not all debt is bad debt. If used correctly, debt can build wealth.

[Mosaud1998]

Originally Posted by Tommy-G

If you are thinking of buying a house soon, do not make any big purchases or new loans until you close on the house. It looks bad to creditors

I still have 2-4 years. Currently saving up for a townhouse. I don't think a house would be good for a single 25-27 year old

[DenverSteve]

Originally Posted by Mosaud1998

I still have 2-4 years. Currently saving up for a townhouse. I don't think a house would be good for a single 25-27 year old

I can't imagine why not. I purchased my first house at 24. The earlier you purchase your house, start building equity and figure out what you want long term, the sooner you can get that mortgage paid off and save/prepare for retirement.... Yeah, I know that's a long way off but 30 years flies by.

[premier3is]

Originally Posted by Mosaud1998

That's what I am thinking. I was thinking about selling the E90 and buying this 19 440.

https://www.laurelbmw.com/certified/...e4cd1105f7.htm

You got your priorities all wrong lol… this is not the assets he was talking about. This is a depreciating asset…

As for 10% down payment, push that up to 20%. Unless you have some seriously high income and a big savings at your age, 10% won't be cutting it depending on your loan amount.

[ppointer]

Any down payment less than 20% will require PMI, or private mortgage insurance. This is due to the extra risk by the mortgage company to lend to someone that cannot afford to have 20% equity in the property. My first home at your age? -- I could only afford 5% down. I refinanced in a few years to get rid of the PMI premium. So, save up 20% if you can.

[sygazelle]

Originally Posted by Mosaud1998

That's what I am thinking. I was thinking about selling the E90 and buying this 19 440.

https://www.laurelbmw.com/certified/...e4cd1105f7.htm

I was just about to congratulation you on being 23 and driving a paid-off car, and an amazing E90 at that. The advice in the responses so far is spot on I think. I'd add that you should NOT get a big car loan, or a car lease, until you already have the house. Buying (or leasing) shiny objects because you can does not help your long-term net worth. Now if you want to live in the moment, go for the '19 440. It simply delays your plan to buy a house or at least lessens your ability go get a bigger loan.

To improve your credit worthiness, buy a flat screen TV or something similar, put 60% percent down get a store loan for the other 40% and just make the payments on time. It doesn't have to be a big purchase like a car show that you can pay off your loans.


Other things that will help you build your net worth: Pay your credit card balance in full every single month. Pay into your company's 401k program to the max.

There are many other things you can do but my response and the others to your OP will definitely get you going in the right direction.

My last piece of advice and I promise I will stop is: Don't get all of your financial advice from car forum members! Good luck to you. The fact that you are asking and care about your financial future speaks well of you.