It is evident that Millennials, especially the first time homebuyers, are facing some financial challenges when compared to prior generations. One of the significant challenges that Millennials face is an unpleasant debt to income ratio, or that those who wish to buy have less than sparkling credit scores.
Unfortunately, the problem of bad credit scores can affect interest rates offered and could negatively impact the possible extra points a mortgage borrower has to pay. Bad credit scores will determine if the mortgage borrower can get approval for a home loan.
A Credit Report – What Is It All About?
A credit report is a detailed report about an individual’s credit history prepared by the credit bureau. Lenders use it as a foundation to evaluation potential mortgage borrowers. Credit bureaus collect information about a person’s credit history such as credit cards, mortgages, student loans, judgments, auto loans, and others. They maintain the credit history for many years while the last two years is the time of most activity.
Reasons Why Credit Scores Are Essential
Credit scores directly affect the customer in diverse ways. Creditors, employers, landlords consider these scores most times when looking for their prospective customers. A favorable credit score could serve as a means of knowing whether a potential buyer is eligible to be offered a rental house, job, or even a loan.
The credit score of a potential buyer is essential in determining which property that a buyer can afford. Credit scores have a direct effect on the loan amount, interest rates, and down payments needed. A potential customer can be approved or disqualified for a conventional loan based on the credit scores.
What Can the Millennial Generation do to improve their Credit Scores?
In many cases, bad credit scores, a combination of low income and a large amount of debt create credit issues to the average millennial generation. So, it is a welcome idea to advise those Millennials having credit concerns to look for a qualified credit counselor. The websites owned by state governments are useful places to find reliable government and private agencies for this purpose.
The following advice should be useful to potential buyers.
- They should pay the credit card debt first. Start paying off first the debts with the highest interest.
- Save enough money for their purchase immediately after offsetting their debts.
- Any family member wishing to support their Millennial by way of gifting should do so in cash. Advise your millennial to use it for clearing the debts rather than credit card interest payments.
Paying off debts offers Millennials some advantages. It improves the debt-to-income ratio and removes some of the financial responsibilities first-time home buyers may not expect. Often, mortgages have lower interest than credit cards – this is another advantage. Again, a tax is deducted from interest payments for mortgages, but the reverse is the case for credit card interest payments.
If you’re ready to buy, try using pre-approval forms and talking to a mortgage advisor for the best chances at qualifying.
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