FICO - The First Step to Home Ownership
The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. The quality of your wallet begins the home buying process. To make your goal of homeownership realized, considering your credit score is a must along with the type of mortgage loan for which you'll qualify in Auburn.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with most people traditionally having a score of 650. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is just that and often means you can't get credit extended to you via a mortgage loan. Some of the pieces in reviewing your FICO score are:
- Credit Inquiries — Do you have too many open accounts?
- 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?
- Credit to Debt Ratio — How much do you owe versus your available credit?
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a risk. Your credit score gives lenders a view of what type of borrower you are based solely on your credit history. You'll need a score of at least 700 to get a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest accrued over time could be more than double that of an individual with a near perfect FICO score.
Improving your credit is the first step in buying a home. Call us at (315) 258-9147 and we can help you get on the right track to the home of your dreams.
There are methods to raise your score. Improving your FICO score takes time. It can be rare to make a significant change in your number with small changes, but your score can improve in a year or two by monitoring 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. Here are some ways you can improve your credit score:
- Pay on time. How often you're late with payments greatly affects your credit score. It's where people who have recently experienced job loss see the biggest hit 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.
- Correct your credit report. If you find incorrect items on your credit report, write to 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 give extra care 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 the rest of your cards at a zero balance. It's better to have each of your cards at about less than 40% of their credit limit than to have all of your debt taking up the balance a single card.
- Chain store cards and service station cards. For those who have no credit or below average credit, chain store credit cards and gas credit cards are ways to obtain credit, increase your spending limits and have a solid payment history, which will raise your FICO score. You should always avoid keeping a high balance for more than a couple of months because these types of cards normally have a surprisingly high interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts maintain an active status. But, be sure to pay them off in no more than two or three payments.
Knowing the ways you can improve 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 adverse effects on your credit score. With the help of Lake Country Real Estate, Inc., 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 you can review all of your credit reports for free each year 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.