My articles typically begin with a story, a call from a client who has been duped, lied to or given incorrect information, which has now lead to a poor mortgage financing experience. I hear anguished voices on the other line, frustrated and exhausted in the mess they are now backtracking away from.
This article is no different.
I received a call from the child of a client who has recently graduated from college, just started their first job, and were now looking to buy their first home. I explained the first step is to get “preapproved” for financing with a licensed mortgage professional. The first topic that usually pops up is credit and credit scores. My experience is most young adults just out of college either have no credit and low scores or respectable scores and too little credit (thin credit).
Either way, they don’t qualify for mortgage financing.
According to a recent CNBC article less than 40% of individuals between ages 18-29 own a credit card. The article further mentions that by growing up in the Great Recession, this age group is debt averse and are, “doing a disservice to themselves and their credit scores” by avoiding credit cards.
Herein lies the problem, unless you have $30,000 in cash for that new car and/or $200,000 for that new home, you are going to have to finance these items.
In order to do this, this young adult will need to establish good credit.
There is something to be said for paying cash. However, there is also the argument of using someone else’s money to gain wealth and financing at low interest rates while allowing your cash to earn a higher rate in a well-diversified investment portfolio.
Established credit is a 12-24 month history of a few quality trade-lines of credit in their own name. An authorized user on mom or dad’s credit card account is an excellent training tool, but will not count toward your child’s credit associated with obtaining a mortgage. This means your child will need to begin establishing and maintaining good credit well before they plan to finance a large purchase on their own.
The best way to help is to set the example for your children with your own credit and finances and as soon as they become responsible, begin assisting them with establishing credit.
In today’s “credit is king” world, it’s never too early to teach your children financial responsibility and the do’s and don’ts of credit.
“Mortgage Lending is Our Business: Customer Service is Our Passion.”
Stay tuned and stay in touch with your mortgage professional. Thank you for the opportunity to serve you.
Raleigh Mortgage Man, NC Mortgage Man, Triangle Mortgage Man, Triangle Mortgage Expert all owned and licensed by David M. Damare’. All rights reserved.Tags: building better credit, building credit, credit, credit for children