Improving Your FICO Score for Home Ownership
Choosing a lender isn't the first step in becoming a homeowner. 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 lender for which you'll qualify in Gloucester.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. Most people usually have a score of 650, but scores range from 300 to 850. In recent years, however, some borrowers have seen their score lowered because of job loss, closed credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in determining your FICO score are:
- 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 loans and credit cards?
- Payment History — How many late payments have you made?
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 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 bureau.
Lenders want to be positive that giving you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you are solely because of 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 an individual having a near perfect credit score.
We're used to working with all levels of FICO scores. Call us at (804) 694-3113 and we can help you get on the right track to the home of your dreams.
You want a better score, but how do you get it? Building your FICO score takes time. It can be difficult to make a significant stride change in your FICO score with small changes, but your score can improve in a year by monitoring your credit report and by wisely using credit. The most important thing is to know your FICO score. You'll improve your credit score by using these pointers:
- Apply for service station cards or retail credit. For those who have no credit or less-than-stellar credit, department store credit cards and gas credit cards are ways to begin your credit history, increase your credit limits and keep up your payments, which will raise your credit. You should always avoid maintaining 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'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, be sure to pay them off in no more than two or three payments.
- Keep up with payments. Your credit score plummets with every account that goes to collections. It's one of the reasons people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to restore your credit with payment history, but it's the most reliable way to show that you're responsible enough to make payments to a lender.
- Correct your credit report. If you discover incorrect items 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 want to avoid of having one card that is at the limit and have the rest of your cards at a zero balance. It's better to have each of your cards at a lower balance than to have the bulk of your debt transferred to one card.
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. Keep in mind that when it's time to apply for a loan to purchase a house, you'll want to keep your credit inquiries within a two-week window to avoid a negative mark on your credit score. With the help of Southern Trade Realty, Inc., the loan process is sure to go more smoothly so you, too, can become a homeowner.
Get more information by visiting 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.