In every class I teach, I am always telling people about the importance of checking their credit report each year. Recently I had a mortgage client who had never checked his credit. He was confident everything was in good shape because he had not needed credit. I pulled the credit, he was correct about no debts, but he was being reported as deceased. Yes, deceased, no credit score, no credit history. This is not a problem for the deceased. However, this is a problem when you are alive and well.
He was surprised to find out about this, and has to fix it with the three credit bureaus. The problem is why he needs (or wants) credit now. He wants to buy a house, quickly. Can he buy a house right now? Not until his credit report is corrected, and then we will have to see about establishing credit. Once he is reported alive he could possibly qualify for the FHA mortgage using alternative credit.
This is yet another example of why we as consumers need to check our credit with some frequency. A minimum of once a year. Credit is an ongoing thing, and when you need it you want to make sure it is there. Opportunity and survival, the two reasons we need credit. Just like the best time to buy supplies is before the hurricane hits. The best time work on credit is when you don’t need it. As the saying goes: banks are always willing to lend you money when you don’t need it. What about when you really need it? Preparation prevents this problem. Buy your umbrella on a sunny day, don’t wait for it to rain.
Imagine waking up one day and deciding to run a marathon. I don’t mean waking up and deciding to train for a marathon. I mean waking up, going to a race, signing up and running in a marathon with no training or preparation. How is that going to go? Badly if you aren’t a runner. In all likelihood you wouldn’t even be able to sign up for a marathon the day of the race. At least not a popular race, let alone go out untrained and complete the running course. Sounds ridiculous doesn’t it? Yet every week I talk to someone who is doing the same thing. It just isn’t running a marathon, it is buying a house. Which is kind of like a marathon. There is preparation, and addressing credit now is the first step in that training process.
Make it your goal..scratch that, your priority to establish at least three credit cards. If you do this you will set yourself up to get what your want. Why three? In the worst case scenario if you can show three traditional credit accounts open for at least 12 months you are more likely to be approved for a mortgage. More on the details of this in a later post.
About the Author: Patrick Ritchie loves teaching about credit; he is the author of The Credit Road Trip and The Credit Road Map series of books. Check out his free online classes at www.CreditLiteracyProject.com.
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