How paying your bills on time in your 20's can help buy your first home

Best Practices For Young People Planning To Buy a Home In The Future

Understanding the way credit works early in your adult life, can allow you to develop a plan for your entire financial future. That can be integral when it comes time to purchasing a home.

Paying your Bills on Time is Vital

When you’re young bills can be a burden. You usually haven’t established yourself yet, and may still be dealing with school, or unpaid internships, which require a lot of time with little or no compensation. However, it is still important to be prudent and pay all of your bills on time, as this can have a dramatic impact on your eventual ability to purchase a new home. While it may be hard to think about the future in such a long-term manner, doing so can actually save you a lot of time, money, and hassle in the long run.

There are many different bills that someone in their 20’s can accrue just by living a normal life. The most common will be school debts and loans, paid for time spent in college/university. While the degrees earned from these investments can have great long term earning potential, it may still take some time after graduating to find a good job. That can make it particularly difficult to pay off debt.

Some other common types of debt in your 20’s can be car loans and credit cards payments. All of these bills need to be paid in a timely manner. Failure to do so will be recorded on your credit bureau and can prevent you from obtaining credit in the future.

The problem with paying your bills late or not paying them at all is that it can affect your credit score. That is a number that financial institutions utilize to determine how much of a risk you are for lending money. If you pay your bills late then your credit score will go down, and banks will be much less likely to give you a mortgage or a loan.

According to Angela Colley of “If you have bad credit, you may struggle to get approved at all. Even if you have fairly good credit, a few points could mean a difference of thousands of dollars of interest. Boosting your credit score before you apply for a loan can help you get a better rate,”

Another problem that you can run into when you pay your bills late and end up with a bad credit score is that any lending company that will agree to give you a mortgage will charge a very high interest rate. Interest is the money that the bank charges you above the loan amount, in order to make a profit from the mortgage. The lower the interest, the lower the overall payment on your mortgage. That means that paying your bills on time and having a high credit score can lead you to paying less overall, for a home when you go to purchase one.

Beware of Those Credit Cards

One of the biggest dangers to people in their 20’s are credit cards. There are numerous companies out there that will try to seduce you into signing up for credit cards, promising you free money that will usually incur very high interest rates.

As a young person it is important to avoid any debts that you can’t pay off. Some people take out loans to purchase cars, or for regular living expenses, and then find that they can’t pay their bills on time. While there may be some short-term gratification for that behavior, in the long run it will end up costing you a lot of money, and may make it impossible for you to purchase a home.

The most important thing is to take a long-term approach to your financial planning. You have to figure out how you want your life to develop over time. If you want to get married, have children, and raise a family then the actions you take in your 20’s can have a profound impact on those events when you get into your 30’s and 40’s. It can even effect the size of the home that you are able to purchase for your family to live and grow in.

There are a number of things that you can do to make sure that you pay all of your bills on time and maintain a high credit rating. The most important is to follow a strict budget. You need to know how much money you have coming in each month, and then allocate that to the necessities such as rent, utilities, food and any debts you may have. Doing that will let you know exactly how much you are able to spend, giving you a guideline for the behaviors that you take.

You should also try to avoid taking on new debt if possible. Avoid credit cards, and payments on large luxury items such as cars, boats, and fancy vacations. At the same time it is important to maintain a safety cushion that will be able to support you if there is an emergency, or if you lose your job.

Overall, you have to keep your eye on the prize. Skipping out on debts and paying your bills late may seem like a fun thing to do when you’re young. But unfortunately it can have a huge effect on your ability to purchase a home later on. By paying attention to your long term goals and acting in a responsible manner you can make your life much easier.

Shawn & Kyle Cunningham
Cunningham Group at RE/MAX Advantage
(702) 823-0855 Shawn
(702) 823-0840 Kyle