In the Market: Building up your credit history

Nneka Madus
Posted by Nneka Madus
Mortgage Market Analyst

This weekly feature is a real estate news roundup from a millennial’s point of view. When a young professional moves from Indianapolis (median home price $125K) to San Francisco (median price $1 million), you can expect an adventure. Nneka Madus, an analyst in Bank of the West’s Mortgage Division, did just that and has plenty to share in her quest to own a home in San Francisco.

Young woman sitting on couch with laptop open and credit card in hand, with a few gift bags nearby.Good things come to those who … save? Many people thinking about buying a home hesitate at the first step: saving for a down payment. Coming up with a down payment can be a hurdle for prospective homebuyers, especially for millennials just getting started in the workforce. We have the tall order of juggling rent, bills, possibly student loans, and trying to save for a down payment on top of that. As Jonnelle Marte explains in the Washington Post, it’s going to take more than skipping your weekly Venti Frappuccino(R) at Starbucks. But there are efficient and effective ways a prospective buyer can begin saving for a down payment.

At first glance, I was in disbelief when I read this Washington Post headline — “More than 6 in 10 millennials say they don’t have a credit card” — because I’m a millennial, and I definitely have credit cards. But between credit and debit cards, I say debit for the win (I hate carrying cash). I prefer debit cards because I can keep myself out of trouble — if the money is there to buy something that I want, great; if not, I don’t buy it.

Although I’m keeping myself out of trouble now, avoiding credit may not be the best approach in the long term. Having a credit card is one way for young consumers, over time, to build our credit histories and demonstrate we can pay our bills on time, every time. It’s funny, but sometimes you may have to have credit to get credit.

FICO made headlines announcing its new scoring model due out this fall. Tracy Becker gives the scoop on the major change with this model in NerdWallet and how this may affect credit scores. Meanwhile, Wendy Cutrufelli (my boss) pointed out in her blog post that those waiting to buy a home or refinance in the fall may be disappointed. Most mortgage loans will likely still be underwritten using FICO scoring software that is two generations old.

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