Scoring Your Credit - How's Your FICO?
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins and ends with your finances. Without an above average FICO score, purchasing a house is more difficult and, you could find yourself renting for another couple of years in Tryon until your score improves.
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 traditionally having a score of 650. 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 decent interest rate. Some of the factors in summing up your FICO score are:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- 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?
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a risk. Your credit score gives lenders a view of what type of borrower you'll be solely because of your credit history. You'll need a score of at least 740 to get a satisfactory interest rate. You'll still get approved for a mortgage with a lower score, but the interest paid over time could be more than double the amount of an individual having a higher credit score.
Staying on top of your FICO score 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.
You want a higher score, but how do you get it? Improving your FICO score takes time. It can be difficult to make a large-scale change in your number with quick fixes, 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. Here are some methods to improve your credit score:
- Stay on top of 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 dip in their credit score. Yes, it takes longer to build up your credit this way, but it's the surest way to show that you're able to make payments to a lender.
- Correct your credit report. If you discover 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 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 don't want to have 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 a lower balance than to have the bulk of your debt sitting on a single card.
- Department store cards and gas cards. For those who have non-existent credit or low credit, department store credit cards and gas credit cards are ways to start your credit history, increase your spending limits and stay on top of your payments, which will raise your FICO score. You should always avoid maintaining a large balance for too long because these types of cards normally 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 maintain an active status. But, make sure you pay them off in one or two payments.
Now that you're better informed about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Know 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 a negative mark on your credit score. With the help of RE/MAX Advantage Realty, shopping for a mortgage is sure to go more smoothly so you, too, can become a homeowner.
Learn more about FICO scores at 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.