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. Without an above average credit score, purchasing a house is harder and, you could end up renting longer than you expected in Auburn, New York until your score improves.
The Fair Isaac Company bases your FICO score on the summary of your complete credit history. Most people traditionally have a score of 650, but scores range from 300 to 850. Since we've experienced an economic downturn, however, some borrowers have seen their score drop dramatically as a result of underemployment, charged off credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the pieces in deciding your FICO score are:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How many months do you make late payments?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — Do you have too many open accounts?
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 systems to calculate 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 make sure that giving you a loan isn't a risk for them. Your FICO score gives lenders a view of what type of borrower you'd be based solely on your credit history. You'll need a score of at least 700 to get a acceptable interest rate. If your score is less than that, you can still qualify for a loan, but the interest accrued in the long run could be more than double the amount of someone having a higher FICO score.
Staying on top of your FICO score is the best way to ease into owning a home. Call us at (315) 258-9147 and we can help you get on the right track to the home of your dreams.
How do you obtain a better score? Building your FICO score takes time. It can be rare to make a significant stride change in your number with quick fixes, but your score can improve in a year or two by monitoring your credit report and by using your credit wisely. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Even out your debt. At first, this doesn't seem like a good idea. But, you don't want to have 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 about less than 40% of their credit limit than to have the most of your debt transferred to a single card.
- Retail cards and gas cards. For those who have no credit or low credit, chain store credit cards and gas credit cards are ways to improve credit, increase your spending limits and keep up your payments, which will raise your FICO score. You should always beware of charging a high balance for more than a couple of billing cycles because these types of cards normally have a larger interest rate.
- Keep your cards active. 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, pay them off in no more than two or three payments.
- Stay on top of payments. 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 build up your credit this way, but it's the surest way to show that you're able to make payments to a bank.
- Correct your credit report. If you find 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.
Now that you know more about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. Remember that when it's time to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid damaging your credit score. With the help of Lake Country Real Estate, Inc., the loan process can be a stress-free experience so you, too, can become a homeowner.
Get more information by visiting 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.