Establishing and maintaining good credit

Building a good credit history is not difficult. Mortgage lenders operate from the principle that your past behavior can predict your future behavior. If you have been responsible with credit in the past, you will likely continue to be responsible. Conversely, if you have been irresponsible (e.g., made late payments), you will likely continue that bad pattern.

If you have never had a line of credit, you should establish one immediately. In order to obtain financing for large purchases, especially mortgages, you are required to have had credit in the past.

The first step is to open one (or preferably two) credit card accounts. Keep in mind that you must actually use the accounts in order to fully establish credit. Make purchases; you always have the option of paying them off within the grace period, which will prevent you from paying interest.

Of course, you are not required to pay the balance each month. If you decide to pay it off over an extended period of time, just try to make sure that you do not use all of your credit. Maxing out your account will lower your credit score.

Furthermore, it is extremely important that you pay the minimum balance on time. You will receive negative marks on your credit report if your payment is below the minimum, or if you make the payment late. Late payments can also result in raised interest rates or large late fees.

Whenever you apply for a mortgage loan, the last two years of your credit history will be most important. If you have had any problems within that time, it will be difficult (if not impossible) to get a reasonable interest rate.