Home buyer's Guide to Better Credit

The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process starts with your finances. To become a homeowner, you must consider your FICO score along with the type of loan for which you'll qualify in Lomita.

The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with the majority of people traditionally having a score of 600. Since we've experienced an economic downturn, however, some borrowers have seen their score lowered as a result of unemployment, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the pieces in reviewing your FICO score include:

• Payment History — How often do you make late payments?
• Credit to Debt Ratio — How much do you owe versus how much credit you have available?
• Credit Inquiries — Do you have too many open accounts?
• Types of Credit — Do you have a healthy mix of loans and credit cards?

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. As a result, you have three scores, one for each bureau.

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 an insight into what type of borrower you are based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher 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 the amount of an individual having a higher FICO score.

Getting your credit in order is the first step in owning a home. Contact us and we can help you get on the right track to the home of your dreams.

How do you obtain a higher score? Building your FICO score takes time. It can be difficult to make a large-scale change in your number with small changes, but your score can improve in a few years by monitoring your credit report and by wisely using credit. The best way to do this is to know your FICO score. You'll improve your credit score by using these helpful hints:

• Retail cards and gas station cards. For those who have non-existent credit or below average credit, retail credit cards and gas credit cards are ways to obtain credit, increase your spending limits and keep up your payments, which will raise your FICO score. You must always avoid carrying a high balance for more than a couple of months because these types of cards normally have a larger interest rate.
• Use your credit. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts maintain an active status. But, be sure to pay them off in one or two payments.
• Pay on time. Delinquent payments instantly drop your credit score. It's one of the reasons people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the most reliable way to show that you're able to make payments to a bank.
• Ensure that your credit history is correct. If you discover 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 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 less than 40% of their credit limit than to have all of your debt transferred to one card.

Now that you're better informed about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. 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 damaging your credit score. With the help of Kivett Realty, shopping for a mortgage can be a stress-free experience so you, too, can become a homeowner.

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.