Debt. Whether you think that it is good or bad, the word conjures up feelings.
Debt isn’t always bad. In fact, today we are going to talk about hidden things (that we don’t typically consider debt) and how it can help you with your credit score which will ultimately help you to get a house.
Some of us have what I call hidden debts because for a short time, we owe money on it even if we never pay interest to anyone.
We have two credit cards. One for business and one for personal use. We put everything on them possible each month to get the rewards that are offered and then pay it off in full when the bill is due. So technically whatever I buy on my credit card on the second day of the month is a debt until I pay it off at the end of the month. But I don’t consider it bad debt. It is more like a hidden debt because, while it is a debt, we don’t necessarily think of it as debt although technically it is. I am buying what I would buy with a debit card anyway, yet I pay no interest and get rewards.
From a house purchasing point of view, by using that credit card, I am also building my credit which can allow me to get better interest rate opportunities when buying a house.
Some people have had things happen in their lives that made their credit score plummet. They are so terrified of debt that they never want to have it again. So they start to only use cash and don’t do anything to rebuild their credit. They have no debt, which is great and they can be proud of that! But they also aren’t able to build their credit back up very fast either. Cash isn’t always king. A good lender will be able to give you some good ideas on what to do if you are someone who needs to rebuild your credit score. My advice is to listen to them. While you may not like what they say, their experiences can help you.
Here is an experience I had with someone years ago. Their story and so many others like it is why this topic is so important to me. This couple came across hard times through no fault of their own that caused them to experience financial hardship. These hardships resulted in the loss of a vehicle and a foreclosure on their home. This experience caused them to hate debt and they vowed to stay away from it forever, which is understandable. They decided that cash was king. Fortunately they were able to gain employment again and began to rebuild their life. They were renting at this point, started to build up a savings account and bought their vehicles with cash. They felt ready to buy again. So they called me and I thought that I could help. They called a lender to get preapproved. This lender had a history of helping people in similar situations. He told them what to do to build their credit. Now, it was up to them to decide if they were willing to follow his advice. I remember his idea of how to do it shocked me at the time. He wanted them to get a credit card, purchase a pack of gum or a tank of gas with this credit card and then pay it off each month. He said that would show that they had a pattern of paying their bills each month and would increase their credit score to the range it needed to be for a house purchase.
I think that I worked with them for about two years and during that time they never were able to qualify for a loan. They were too scared to follow his advice, understandable after what they had experienced.
Please don’t look at their situation, see it is similar to your own and follow that plan without consulting a lender first. They will run your personal credit and get the information that they need from you to have a plan for your specific situation. Remember, I am not a lender. I am just sharing my experiences with you. The best thing to do if interested in buying a house is let the lender advise you on what to do. They are the experts in that area.
Debt is personal. Whether you have it or not is your business, not mine or anyone else’s. I just want to debunk some myths that are out there. Because in my job, I see things that others outside of the profession don’t see. Kind of like those doctor shows on TV where the doctors share some of the shocking stories that they see in the ER or other places within the hospital. Unless you are in a particular field, you probably aren’t aware of all of the situations one in that field encounters.
So if you are thinking of buying a house and you know that you have a unique situation, reach out to a lender or reach out to me and I will send you a lender’s contact information. Then you can be confident that you are on the right track. I hope that you have a great week!
Esta Ryder, Realtor
Ryder Realty, LLC