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Financial Facts: Good credit better than cash

Bob Kieber

If you are considering the purchase of a new home or investment property you need to know that without good credit you just may have to pay cash for the purchase. I know this may sound just a little extreme but a good credit history and good credit scores are more necessary than having a substantial down payment.

Ask yourself this one question, “Would you lend money to someone with your credit history?” If your answer is no you probably need to read this article two times. If your answer is yes you still need to read this article twice.

Good credit does not just happen. Good credit is due to the diligent work of its owner. Now the work involved does not entail late nights or the sacrifice of great proportions. Good credit happens because its owner does basically one thing, that one thing is to pay their bills on time. Nothing helps a credit score more than always paying your bills on time. And nothing hurts a credit score more than not paying your bills on time.

Consider the position of a mortgage lender, a credit card company or a car loan company. You have purchased a product or service and you have the advantage of being able to use that product or service. The lender has gone out on a limb and said that you can have goods or service in advance of paying for it. The lender, in turn, has paid the seller for the goods or services and, in turn, expects you to pay for what you have received. If you do not pay for it or pay late the lender needs to have some recourse and it is your credit history and credit score.

Home mortgage lenders, credit card companies and car lenders keep open ties with the three major credit bureaus. If you make your payments on time each and every month your credit scores will go up, and if you pay late or not at all your scores go down. High scores are good, low scores are bad.

If you have high scores you will be rewarded with lower interest rates on home and car loans and if your scores are low your interest rates on home mortgages and car loans are high. If your scores are too low you may not even be able to find a loan.

So what is meant when I wrote that good credit scores are better than cash?

If you have good credit, which in my vocabulary means good credit scores, you have dozens of mortgage programs to choose from. If your credit is bad you have only a couple of mortgage programs to choose from, and since there are very few mortgage programs available you will pay a higher interest rate.

Now if you have baskets of cash available to you and you can pay cash for the home why even bother with a mortgage. The answer to that are Federal tax deductions. Those who have mortgages can deduct the mortgage interest that was paid to the lender. Those who pay cash get no deductions and may be cash poor and asset rich if there is no mortgage.

So the bottom line is that good credit and thus good credit scores you have many, many more options when it comes time to get a good rate on a mortgage. Failure to pay those you owe will come back and bite you time and time again.

For answers to your mortgage related questions call Bob Kieber are (970) 262-1199 or email him at rkieber@comcast.net. Bob is a local mortgage lender and principal of Resort Lending. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country.


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