Home buyer's Guide to Better Credit
The home buying process doesn't start with getting pre-approved for a loan or with choosing a real estate agent. The content of your wallet begins the home buying process. To propel your dreams of homeownership forward, you must consider your FICO score along with the type of loan for which you'll qualify in Tryon.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. Most people usually have a score of 650, but scores are tiered from 300 to 850. Even though more people these days are experiencing job loss and delinquent credit cards, 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 determining your FICO score include:
- Payment History — How often do you make late payments?
- 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 loans and credit cards?
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. This means 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 credit score gives lenders an insight into what type of borrower you are 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. You can qualify for a loan with a lower score, but the interest paid in the long run could be more than double that of an individual with a better credit score.
Improving your credit is the first step in purchasing a home. Contact us and we can help you get on the right track to the home of your dreams.
There are methods 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 few years 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 tips:
- 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 restore your credit this way, 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 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 limit and have the rest of your cards at a zero balance. It's better to have each of your cards at about 25% of their credit limit than to have all of your debt transferred to a single card.
- Apply for service station cards or department store credit. For those who have no credit or less-than-stellar credit, department store 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 avoid holding a large balance for too long because these types of cards normally have a surprisingly high interest rate.
- Don't let your cards get dusty. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts stay active. But, pay them off in no more than two or three payments.
Knowing the ways you can build up your FICO score, you're one step closer to becoming a homeowner. Know that when you're ready to apply for a loan to purchase a house, you'll want to keep your credit inquiries within a two-week window to avoid damaging your credit score. With the help of RE/MAX Advantage Realty, the loan application process is sure to go more smoothly so you, too, can achieve home ownership.
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.