In the self-focused society we have turned into, buy now pay later and instant gratification are promoted. Credit cards are a way of life for a lot of households, and it can cause a lot of financial woes. So much so that many consumers are shifting away and going to “cash” (Debit card usage is at an all time high), but this could be a bad thing for your credit scores and future ability to finance large purchases. Credit cards are associated with debt and we don’t want that right? Let me clarify, having debt is bad, having an open tradeline in good standing is good.
Let’s say for an instant you stumbled upon Smart Credit building while trying to prepare yourself for a home loan. You know you have some issues and are trying to make the best of it. Providing your family with a home of their own instead of renting, paying your bills on time and the pursuit of happiness are your priorities. You have a good job you have been at for a while, a decent income, your credit issues are far behind you, in fact you don’t owe anyone anything except your normal monthly bills. You may not have a credit score at all.
Credit scores are a snapshot and numerical value of your payment history as well as a risk assessment. With no debts or open accounts you might think you are of little risk when in fact most lenders will see that as high risk. You have not shown your ability to consistently repay your obligations. In comes the importance of a credit card.
While there are no published minimum tradeline requirements, there are overlays from banks issuing VA and FHA backed home loans. There are some non-traditional ways for lenders to show responsible payment history, however if your goal is to purchase a home in the near future and that’s why you are reading our articles you should consider having an open credit card account. This excerpt from VA Loan Requirements gives a little more insight.