By, Jesus Flores, Loan Officer

Owning a home is one of the most single important decisions we make in our lifetime. However, one critical element for realizing this dream is developing and maintaining good credit.

Although credit simply means you are using someone else’s money to pay for a purchase with a promise to pay that money back, it will help you obtain a loan when you want one, with favorable terms, and it also gives you more control when shopping for loans.

Why not pay with cash?

Paying cash for smaller items, such as clothing and groceries, is generally a good idea. However, using credit cards for larger purchases, such as appliances, can help you establish the good credit history that will help when it comes time to make even larger purchases, such as cars and homes. But remember: your credit is only as good as how well – and on time – you pay your monthly debts.

Does it matter how many credit cards I have?

Yes. Having numerous credit card accounts open, even if the accounts have low or zero balances, may affect your ability to get a loan. This is because a potential lender considers all available credit limits – not just debts – when deciding if you would be a good credit risk.

What happens if I don’t make timely payments?

Each time you make a payment after its due date, you may have to pay penalties or late fees. In addition, a history of making late payments may affect your credit history and ultimately mean higher interest rates on subsequent loans.  

What is considered a late payment?

Generally, a payment is considered delinquent if it’s received 30 days past its due date. A mortgage payment, however, is considered late when it’s received 15 days after its due date. If an account has payments that are 60 or 90 days late, that account is considered to be in serious delinquency. Any late rent or mortgage payments in the past 12 months could affect your qualification for a mortgage loan and its interest rate.

A typical credit report is made up of four types of data: personal information, credit information, public record information and inquiries about your credit. Credit information includes details for all loans and lines of credit: the date it was opened, the credit limit or loan amount, the total balance and the monthly payment amount. The report also shows your payment history over the past several years and the names of anyone else responsible for paying an account, such as a spouse or a co-signer.