FICO - The First Step to Owning
You might think that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process starts and ends with your finances. Without an acceptable credit score, entering into a loan for a house is harder and, you could find yourself renting longer than you expected in Auburn, New York until you improve your score.
The Fair Isaac Company bases your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with the majority of people traditionally having a score of 650. With the change in the economy, however, some borrowers have seen their score lowered after underemployment, closed credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in deciding your FICO score are:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — Do you pay your bills on time ?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — Do you have too many open accounts?
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 are based solely on your credit history. You'll need a score of at least 740 to get a satisfactory interest rate. You'll still qualify for a mortgage loan with a lower score, but the interest paid over the life of the loan could be more than double that of someone having a stronger credit score.
Getting your credit in order 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.
You want an improved score, but how do you get it? Improving your FICO score takes time. It can be hard to make a significant change in your number with quick fixes, but your score can improve in a year or two by keeping tabs your credit report and by using your credit wisely. The most important thing is to know your FICO score. You'll improve your credit score by using these pointers:
- Correct your credit report. 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 give extra care to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you don't want to have one card that is maxed out and have the rest of your 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 sitting on one card.
- Department store cards and service station cards. For those who have non-existent credit or low credit, store credit cards and gas credit cards are ways to improve credit, increase your credit limits and stay on top of your payments, which will raise your credit. You should always avoid charging a high balance for too long because these types of cards usually have a surprisingly high interest rate.
- Don't let your cards get dusty. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Keep up with payments. Late payments kill your FICO score. It's one of the reasons people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to restore your credit with payment history, but it's the most reliable way to prove that you're responsible enough to make payments to a bank.
Knowing the ways you can improve your FICO score, you can move toward becoming a homeowner. Keep in mind that when you're ready to apply for a loan to purchase a home, you'll want to keep your credit inquiries 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 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.