Increasing Your FICO Score for Home Ownership
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts with your finances. To propel your dreams of homeownership forward, you must consider your FICO score along with the type of lender for which you'll qualify in Albemarle.
A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with the majority of people traditionally having a score of 600. Even though more people these days are experiencing job loss and delinquent credit cards, FICO scores aren't necessarily adjusted "on a curve." A low score is a low score and that often means you can't get credit extended to you via a mortgage loan. Some of the pieces in calculating your FICO score are:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- Credit Inquiries — Do you have too many open accounts?
In reviewing your credit history, you'll find that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. As a result, you have three scores, one for each bureau.
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a problem. Your credit score gives lenders a view of what type of borrower you'll be solely because of your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 700 or higher to get a satisfactory interest rate. If your score is lower, you can still qualify for a loan, but the interest accrued over the life of the loan could be more than double that of an individual with a higher credit score.
Staying on top of your FICO score is the first step in buying a home. Call us at (704) 985-6817 and we can help you get on the right track to the home of your dreams.
You want a better score, but how do you get there? Building your FICO score takes time. It can be hard to make a large-scale change in your credit score with small changes, but your score can improve in a few years by monitoring your credit report and by wisely using credit. The best way to do this is to know your FICO score. You'll improve your credit score by using these pointers:
- Ensure that your credit history is correct. If you find incorrect items on your credit report, contact the bureau requesting that the item be removed. If you have a common name or the same name as a family member, you'll want to pay extra attention to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't sound like a good idea. But, you steer clear of having one card that is at the limit and have your remaining cards at a zero balance. It's better to have each of your cards at a smaller balance than to have the most of your debt taking up the balance one card.
- Department store cards and gas station cards. For those who have no credit or below average credit, store credit cards and gas credit cards are ways to start your credit history, increase your spending limits and keep up your payments, which will raise your credit. You must always avoid maintaining a large balance for too long because these types of cards traditionally have a higher interest rate.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts stay active. But, make sure you pay them off in one or two payments.
- Pay on time. Your credit score plummets with every account that goes to collections. It's one of the reasons people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to rebuild your credit with payment history, but it's the most reliable way to show that you're able to make payments to a bank.
Now that you're better informed about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Remember that when you're ready to apply for a loan to purchase a home, you'll want to keep your applications within a two-week window to avoid a negative mark on your credit score. With the help of Glen Alford Realty, shopping for a mortgage can be a stress-free experience so you, too, can achieve home ownership.
To learn more, visit myFICO.com, Fair Isaac's informational site and review your credit history for free at annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: equifax.com, experian.com and transunion.com.