So we are going to do a series over the next few weeks of things the average mortgage professional wished people knew so that they would not be held back by inadvertent missteps.
This week we will look at young adults just starting out. Let’s outline five things you really need to be aware of to set yourselves up for true financial dominance.
1. Credit is not evil, it is necessary. If you grew up in a home where only the dangers of credit were discussed then you need to hear the flip side as well. Credit itself is not dangerous. The misuse and over extension of it, is. You have to have established credit to do almost anything from buying a home to getting a cell phone, from getting utilities to renting an apartment. Proper management of your credit will save you money as you will have a proven history and will receive the best offers for credit cards and mortgages.
2. Everybody starts out being given the benefit of the doubt. There are 2 credit agencies in Canada which all lenders of all things report to monthly. You will be graded on your ability to make your payments on time, stay within your limits and as to how much overall credit you have. Everybody is given a strong score at the beginning. It is up to you to keep it. Even the cell phone providers report to the agencies so make sure you pay that on time too.
3. The magic number for the rest of your life is 2! You need to have 2 types of credit, reporting for at least 2 years with a minimum limit of $2000. If you pay off a car loan, make sure you still have 2 types of credit. If you decide to stay home with your future family, still make sure you have 2 types of credit reporting in your name. One of the credit facilities should be a credit card. The way you manage this revolving access to credit is looked at carefully by potential lenders.
4. The onus is on you. Nobody is going to call you to remind you that a payment is due. If you move to a new area you are the one responsible to let the companies know where to forward the bill to. If you are offered a $13,000 line of credit and a $54,000 car loan and you accept, you cannot later blame them for ‘letting’ you get yourself into trouble. If you accept a mortgage, it is up to you to ask questions before you sign. A large credit balance and a high vehicle payment will dramatically affect your ability to purchase a home. That $13,000 line of credit or a $400 vehicle payment will each decrease your purchasing power by $100,000.
5. To keep your score strong: • Make your payments on time • do not exceed 50% of the available credit limit • Be cautious in how many credit inquiries you allow
There you have it. The things we wish young people knew so that when they are ready to move into the next phase of their life they will not be abruptly stopped and have to wait and wish someone had told them. There are so many amazing Dominion Lending Centres mortgage professionals who are more than happy to answer your questions so ask away before you get stung.
Next week: Things That Mortgage Professionals Wish Those with Damaged Credit Knew