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Home Buyer

How Recent Grads Can Build Credit to Buy a House

Graduating from college is a satisfying feeling. If you’re ready to strike it out on your own, you might look forward to purchasing a condo or house in the near future. But before you move forward with a home purchase, it’s important to get your financial ducks in a row. 

This involves more than a steady paycheck, however. It also involves establishing or improving your credit. So, if you haven’t given much thought to your credit score lately, now’s the time to get serious.

Here are five ways that recent grads can build good credit and buy a house.

1. Automate bill payments

Juggling new expenses can be challenging. The busier you become and the more responsibilities you take on, the easier it is to forget a monthly due date. 

Forgetting to pay a bill can result in late fees, and this can also damage your credit score if your account becomes 30 days past due. Remember, your payment history makes up 35% of your credit score. Therefore, if your plans include buying a house, make sure you pay your bills on time every month. 

To help you manage expenses, set up automatic bill payments. This way, all of your creditors receive their payments on time every month.

2. Use credit

If you’ve heard horror stories about credit, you might adopt a cash is king mindset. But while using cash can keep you out of debt, this approach doesn’t help your credit score. 

You have to use credit to build a strong credit score, which also helps you qualify for a home purchase. So, rather than be afraid of credit and avoid it altogether, learn how to use credit responsibly. 

If you haven’t already, establish credit by applying for a secured credit card through a bank. Use this card for small purchases and then pay off your balance in full every month. Only charge what you can afford, and make sure your credit card balance never exceeds 30% of your credit line.

3. Don’t default on student loans

Student loan payments begin about six to nine months after graduation. Depending on how much you owe, your monthly payment might be over a hundred dollars. This can create a financial hardship. But whatever you do, don’t let your student loan default. 

If you can’t afford your minimum payment, talk to your student loan lender about hardship provisions. If you have a federal loan, you may qualify for deferment or forbearance. Both options can temporarily lower your payment or suspend your monthly payment for a certain number of months. 

Private student loans don’t typically offer these types of hardship provisions. If your payment is too high, however, consider refinancing the loan to get a lower interest rate. This may reduce your monthly payment. 

4. Live at home and pay off debt

Even if you’re okay with postponing a home purchase until your credit improves, you might be eager to rent your own apartment. 

Renting can prepare you for homeownership. But if you’ve racked up a sizable amount of debt while in college, it might be better to live with your parents for a while, so you can save money and pay off debt. 

If you’re able to pay off credit card debt or reduce your student loan balance significantly, your credit score will improve. Plus, lower debt payments result in more disposable income.

5. Watch your credit report

It’s also important to keep a close eye on your credit report while you’re preparing for homeownership. It only takes one negative mistake on your report to drive down your credit score and make it difficult to qualify for a home loan. 

Check your credit report at least once a year. Visit AnnualCreditReport.com to request your copies.

Bottom Line

A home purchase is one of the biggest investments of your life. The earlier you become a homeowner, the sooner you can earn equity and move into a bigger or better home in the future. Cherry Creek Mortgage is committed to helping you realize this dream. Give us a call and we’ll help you get the keys to your future.