Scoring Your Credit - How's Your FICO?
The home buying process doesn't start with getting pre-approved by a lender or with choosing a real estate agent. The content of your wallet begins the home buying process. To realize your goal of owning a home, you must consider your FICO score along with the type of loan for which you'll qualify in Venice.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 650, but scores range from 300 to 850. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is a low score and that often means you can't get a loan. Some of the factors in calculating your FICO score include:
- Credit to Debt Ratio — How much do you owe versus your available credit?
- 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?
- Payment History — Do you pay your bills on time each month?
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 systems 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 of the bureaus.
Lenders want to be positive that allowing you a loan is a safe move. Your credit score gives lenders an insight into 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 740 or higher to get a satisfactory interest rate. If your score is less than that, you can still qualify for a loan, but the interest accumulated in the long run could be more than double that of someone with a near perfect FICO score.
Staying on top of your FICO score is the best way to ease into owning a home. Call us at 941-584-0889 and we can help you get on the right track to the home of your dreams.
There are ways to increase your score. Building your FICO score takes time. It can be difficult to make a significant change in your FICO score with small changes, but your score can improve in a year or two by keeping tabs your credit report and by using your credit wisely. The best way to do this is to know your FICO score. Here are some ways you can improve your credit score:
- Apply for gas cards or store credit. For those who have no credit or less-than-stellar credit, retail credit cards and gas credit cards are ways to repair credit, increase your credit limits and have a solid payment history, which will raise your credit. You must always beware of holding a high balance for too long because these types of cards traditionally have a surprising interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts maintain an active status. But, make sure you pay them off in one or two payments.
- Pay on time. 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 with payment history, but it's the surest way to show that you're responsible enough to make payments to a lender.
- Ensure that your credit history is correct. If you find mistakes 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 pay extra attention to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you steer clear of having one card that is maxed out and have your remaining cards at a zero balance. It's better to have each of your cards at about 20% of their credit limit than to have all of your debt taking up the balance one card.
Knowing the methods you can use to improve your credit score, you can move toward becoming a homeowner. Know that when it's time to apply for a loan to purchase a home, you'll want to keep your lender applications within a two-week window to avoid damaging your credit score. With the help of Bosshardt Realty Services, the loan process is sure to go more smoothly so you, too, can achieve home ownership.
Get more information by visiting 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.