DCH Learning Center: Building your Credit Towards Homeownership

Is owning a home a dream? For many, home owning is a dream that seems like it will never become a reality. According to a recent survey by Intuit, it takes an estimated 51 months, or 4.25 years, for an average American household to save the recommended 20 percent down payment. The average home down payment is $54,145 for a single family home. This of course only tells a fraction of the story since housing costs, income, and living costs vary so wildly from metropolis to metropolis. 

According to this same data, Texas home buyers would need to save an average of four years. Dallas is one of the most affordable cities, but within the city, lines are continually being drawn between areas that are easy to live and work in, and areas that are simply not because of inflated property values. We would like to take the opportunity to discuss ways that middle income earners and lower income earners can increase their credit scores, quickly, to be able to afford borrowing for a home. It is not as simple as just a down payment, your credit needs to be in shape as well. Here are some ways to build your credit towards homeownership. 

To build your credit, first, consider how credit is calculated

Credit scores are calculated by computer algorithms called scoring models that analyze credit reports from Experian, TransUnion or Equifax. Scoring models use different factors, and weigh factors differently but share a number of similarities including being able to predict the likelihood that a borrower will be 90 days late on a bill in the next 24 months. For this reason, on time payments are critical. The higher score indicates a person is less likely to fall behind on a bill, and vice versa. A score in the mid-600s or higher is often considered a good credit score, however for home buying, according to Fannie Mae, the average home buyer score is around 750. If you do not know what your score is, there are so many free tools online, just be sure that you are careful to not give information to an unverified source. 

If you have little to no credit history: 

If you have little credit history, apply for a credit card with a major credit bureau. Consider cards with rewards programs, such as cash back, or those with low interest that you are able to pay balances on promptly. Building credit is surprisingly easy if you follow steps to be sure that your balance is always low to your debt ratio, and that you pay on time. Truly it is that simple. 

If you have SOME credit history, but also some debt: 

If you do have some credit history but you would like to increase your score, as soon as possible; start by paying off past due accounts and paying down revolving accounts. There are a variety of financial tools to help accomplish this and the most important thing to remember here is that past due payments are to be avoided. 

If you need to repair your credit: 

If you have filed for bankruptcy, or made decisions that hurt your credit, it can take up to 7-10 years to rebuild credit. As you are rebuilding, be sure to make payments on time and take out credit cards with low balances and low interest. Do not be too discouraged because there are many incentives for those looking to enter back into the housing market. 

We hope that these tips have helped you navigate your way to better credit. If you are hoping to buy a home in 2023 and would like more resources, please see our blogs on Financial Literacy and keep connecting with us on social media for upcoming events!