Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins with your finances. Putting back your money for a down payment is a good idea, but if you lack a strong credit score to back it up, you could end up renting for another couple of years in Newcastle until you improve your score.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 650, but scores are tiered from 300 to 850. 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 just that and often means you can't get a decent interest rate. Some of the pieces in reviewing your FICO score include:
- 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?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — Do you pay your bills on time each month?
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. You have a credit score with all of the bureaus.
Lenders want to ensure that allowing you a loan isn't a risk for them. Your FICO score gives lenders insight into what type of borrower you are 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 an acceptable interest rate. If your score is lower, you can still qualify for a loan, but the interest paid in the long run could be more than double the amount of an individual having a near perfect credit score.
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We're used to working with all levels of FICO scores. Call us at 307-746-4663 and we can help you get on the right track to the home of your dreams.
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You want a higher score, but how do you get there? Building your FICO score takes time. At Home Place Realty, we know it's hard to make a significant stride change in your number with small changes, but your score can improve in a year by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The most important thing is to know your FICO score. Here are some methods to improve your credit score:
- Ensure that your credit history is correct. If you find incorrect items on your credit report, contact 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 pay extra attention to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't seem like a good idea. But, you want to avoid of having one card that is holding the maximum and have the rest of your 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 taking up the balance one card.
- Apply for service station cards or department store credit. For those who have no credit or below average credit, chain store credit cards and gas credit cards are ways to improve credit, increase your spending limits and have a solid payment history, which will raise your credit. Simply beware of maintaining a balance for too long because these types of cards traditionally have a surprising 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 so that your accounts stay active. But, pay them off in no more than two or three payments.
- Stay on top of payments. Payment history is a huge factor in your FICO score. It's one of the reasons people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit with payment history, but it's the surest way to show that you're responsible enough to make payments to a lender.
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Knowing the methods you can use raise your FICO score, you can move toward becoming a homeowner. Know that when you're ready to apply for a loan to purchase a home, 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 Home Place Realty, shopping for a mortgage is sure to go more smoothly so you, too, can become a homeowner.
To learn more, visit www.myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.
At Home Place Realty we don't judge you based on your credit scores and can help you step into home ownership with the best lending insitution for you. E-mail us at homeplace@rtconnect.net or call 307-746-4663 for more information.
