The Importance of Good Credit

Being in the real estate business, I know the importance of a good credit history.  My daughters both recently graduated college and are now employed.  My oldest daughter deplores credit and was a bit resistant to my suggestion that she obtain a credit card in order to build her credit history.  But she wisely followed her mom’s advice, and both my girls are building their credit. I hope that one day both daughters will become homeowners.   In order to obtain the best possible interest rate, they will need a high Fico score (760 or higher).

Credit needs to be built in order to achieve a higher FICO.  Both my daughters have credit cards; both have limits that are fairly low.  They use the credit card monthly and pay it off in full each month (carrying a balance and paying finance charges are not required to build credit).  My daughters’ next step will be to get their credit limit increased.

Part of your FICO score is determined by the percentage of the amount owed compared to your credit limit. Example: you have a Visa card with a $3,000 limit; ideally, you should not use more than 25% of your limit.  If you are responsible, the simple solution is to keep getting your limits increased – you don’t have to use the high limit; it only helps your FICO.

Several years ago, I had a client purchase a townhome for their child.  Because their child had poor credit, the lender would not allow them on the loan.  The parents had to pay the higher non-owner-occupied interest rate. Even if your children are not on the road to home ownership, they still need favorable credit in order to rent an apartment. Do your kids a favor. As soon as they are eighteen, teach them the importance of good credit and help them establish credit.  It’s never too soon to teach them responsibility.

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