How's Your FICO?
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 an acceptable credit score to reinforce it, you could find yourself renting longer than you expected in Lomita until your FICO score is acceptable.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with most people normally having a score of 600. In recent years, however, some borrowers have seen their score drop dramatically as a result of job loss, charged off credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in summing up your FICO score are:
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
In reviewing your credit history, you'll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each scoring model.
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 FICO score gives lenders an insight into what type of borrower you'll be 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 paid over time could be more than double that of an individual with a stronger credit score.
Getting your credit in order is the best way to ease into purchasing a home. Contact us and we can help you get on the right track to the home of your dreams.
How do you boost your credit score? Building your FICO score takes time. It can be hard to make a large-scale change in your number with quick fixes, but your score can improve in a year by keeping tabs 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. You'll improve your credit score by using these pointers:
- 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.
- Even out your debt. 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 your remaining cards at a zero balance. It's better to have each of your cards at an even balance than to have all of your debt taking up the balance one card.
- Chain store cards and gas cards. For those who have no credit or low credit, chain store credit cards and gas credit cards are ways to obtain credit, increase your credit limits and stay on top of your payments, which will raise your FICO score. You must always beware of carrying a high balance for too long because these types of cards usually have a higher interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, be sure to use your cards so that your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Stay on top of payments. Delinquent payments instantly drop your credit score. It's where people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the surest way to prove that you're able to make payments to a bank.
Knowing the ways you can raise your FICO score, you can move toward becoming a homeowner. Keep in mind that when it's time to apply for a loan to purchase a home, you'll want to keep your applications within a two-week window to avoid damaging your credit score. With the help of Kivett Realty, the loan process is sure to go more smoothly so you, too, can become a homeowner.
To learn more, visit myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports 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.