How's Your Credit?
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins and ends with your finances. To make your goal of homeownership realized, you must consider your FICO score along with the type of loan for which you'll qualify in Albemarle, North Carolina.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people usually have a score of 650, but scores range from 300 to 850. With the change in the economy, however, some people have seen their score lowered as a result of unemployment, delinquent credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the factors in determining your FICO score include:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
When you pull your credit report, you'll see that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each bureau.
Lenders want to make sure that giving you a loan is a safe move. Your credit score gives lenders an insight into what type of borrower you'd be based solely on 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. You'll still get approved for a mortgage loan with a lower score, but the interest accrued over time could be more than double that of an individual having a stronger FICO score.
Getting your credit in order is the best way to ease into buying a home. Contact us and we can help you get on the right track to the home of your dreams.
You want a higher 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 number with quick fixes, but your score can improve in a few years by keeping tabs your credit report and by using credit extended to you to raise your score, instead of ruin it. The best way to do this is to know your FICO score. You'll improve your credit score by using these pointers:
- Correct your credit report. If you discover mistakes on your credit report, write to the bureau asking that the item be removed. If you have a common name or the same name as a family member, you'll want to give extra care to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't seem like a good idea. But, you steer clear of having one card that is maxed out and have your remaining cards at a zero balance. It's better to have each of your cards at about 25% of their credit limit than to have all of your debt transferred to one card.
- Apply for service station cards or retail credit. For those who have non-existent credit or low credit, department store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and stay on top of your payments, which will raise your credit. You must always avoid holding a high balance for more than a couple of months because these types of cards usually have a steeper interest rate.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards to make sure your accounts maintain an active status. But, make sure you pay them off in one or two payments.
- Stay on top of payments. Your FICO score plummets with each account that goes to collections. It's where people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to restore your credit this way, but it's the surest way to show that you're responsible enough to make payments to a bank.
Knowing the ways you can raise your credit score, you're one step closer to becoming a homeowner. Keep in mind that when you're ready to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid a negative mark on your credit score. With the help of Glen Alford Realty, the loan application process 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 once per year, for free, you can review all three of your credit reports 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.