I closed all my credit cards in the 80’s because I was changing to a lower paying career and didn’t want the temptation. The problem arose when I traveled. hotels and rental cars sometimes didn’t take debit cards and when they did they took a “deposit”. At one time I had $thousands in the bank but when I rented a car the put a hold on $250 and the hotel tried to do the same thing. Since there was a limit on the amount of purchases/day when I tried to pay the hotel bill, the $500 on hold was over the daily limit.
When I applied for credit cards with none for over 5 years (I even paid cash for a $10,000 car), all I could get were the ones with annual fees. At one point I moved to another bank with checking and savings accounts and CD’s. They offered me a credit card for $5000. After a year they sent me a platinum card. I applied to Discover and my old bank that still had an IRA and stock account offered me one. They had turned me down for lack of credit history before. Then Macy’s and Sears offered discounts if I opened up accounts. Since I pay my balances the minute the bill arrives I now have credit on cards of over $50,000 which bumped me up to a 788 FICO.
Not paying interest and being frugal (I save 10% of my gross) allowed me to be in a position to make a 20% down payment. Although I qualified for a $250,000 home, I looked for what I needed now and found a short sale property for $120,000. Of course the mortgage was a slam dunk but the short sale process took months.
So here it is.
1. Make a multi-year plan.
2. Start serious savings
3 When you have a healthy bank account, get a credit card from your bank. Then pull in a platinum card and store credit
4. Use the cards for purchase you normally would pay cash, gas, groceries etc
5 Pay bills online the day they hit your mailbox, remember you had cash in the bank for all your purchases.
6. Save specifically for a down payment.
After 3–4 years you should be ready to buy a home. Your mortgagepayment, insurance and taxes should be no more than 30% of your take home pay. Your realter will tell you to stretch that because you will grow into a higher monthly payment. If your income does grow save that money and when you need a bigger place you will have the cash to keep the mortgage reasonable.
I know 3–4 years seems like a long time but remember the higher your FICO, the lower your interest. 1% less in interest can easily be $50,000 or more saved over the life of the mortgage.