Tips on Improving Your FICO Score for Home Buying
The road to home ownership doesn't start with getting pre-approved by a lender or with choosing a real estate agent. The quality of your wallet starts the home buying process. To become a homeowner, you must consider your FICO score along with the type of mortgage loan for which you'll qualify in Landrum, South Carolina.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with most people traditionally having a score of 600. With the change in the economy, however, some borrowers have seen their score lowered as a result of underemployment, delinquent credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in deciding your FICO score are:
- Payment History — Do you pay your bills on time ?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
When you pull your credit report, 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 determine 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 three of the bureaus.
Lenders want to be positive that giving you a loan is a safe move. Your FICO score gives lenders a view of what type of borrower you'd be solely because of your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 700 or higher to get an acceptable interest rate. If your score is less than that, 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 stronger credit score.
Staying on top of your FICO score is the best way to ease into owning a home. Call us at 828-817-1796 and we can help you get on the right track to the home of your dreams.
How do you get a higher score? Building your FICO score takes time. It can be hard to make a significant change in your credit score with quick fixes, but your score can improve in a few years by keeping tabs your credit report and by wisely using credit. The most important thing is to know your FICO score. Here are some methods to improve your credit score:
- Retail cards and gas station cards. For those who have no credit or below average credit, department store credit cards and gas credit cards are ways to obtain credit, increase your credit limits and keep up your payments, which will raise your FICO score. You should always avoid holding a large balance for too long because these types of cards usually have a larger interest rate.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards to make sure your accounts maintain an active status. But, pay them off in no more than two or three payments.
- Keep up with payments. Payment history is a huge factor in 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 with payment history, but it's the surest way to show that you're able to make payments to a lender.
- Ensure that your credit history is correct. If you find incorrect items on your credit report, contact 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 pay extra attention to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't sound like a good idea. But, you want to avoid of having one card that is at the maximum 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 bulk of your debt taking up the balance one card.
Now that you know more about credit reporting, you'll be able to successfully take the first steps to homeownership, 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 applications within a two-week window to avoid a negative mark on your credit score. With the help of Mickey Hambright, shopping for a mortgage is sure to go more smoothly 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.