Tips on Increasing Your FICO Score for Home Buying
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts and ends with your finances. Saving your money for a down payment is a good idea, but if you don't have a strong credit score to reinforce it, you could end up renting for another couple of years in Valencia until your FICO score is acceptable.
The Fair Isaac Company bases your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with the majority of people traditionally having a score of 650. With the change in the economy, however, some people have seen their score lowered because of underemployment, charged off 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:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How often do you make late payments?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- Credit Inquiries — Do you have too many open accounts?
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 systems to calculate 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.
Lenders want to ensure that allowing you a loan is a safe move. Your FICO score gives lenders an insight into what type of borrower you are based solely on your credit history. You'll need a score of at least 700 to get a acceptable interest rate. You can qualify for a mortgage loan with a lower score, but the interest accumulated in the long run could be more than double that of an individual having a better credit score.
We're used to working with all levels of FICO scores. Contact us 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 there? Improving your FICO score takes time. It can be hard to make a significant stride change in your number 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. Here are some methods to improve your credit score:
- Even out your debt. At first, this doesn't sound like a good idea. But, you steer clear of having one card that is holding the maximum and have your remaining cards at a zero balance. It's better to have each of your cards at about 30% of their credit limit than to have the bulk of your debt transferred to a single card.
- Retail cards and gas cards. For those who have non-existent credit or below average credit, retail credit cards and gas credit cards are ways to start your credit history, increase your credit limits and have a solid payment history, which will raise your FICO score. You must always beware of charging a high balance for too long because these types of cards usually have a surprising interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts stay active. But, be sure to pay them off in one or two payments.
- Pay on time. Payment history is a big factor in your FICO score. It's one of the reasons people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit this way, 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 discover mistakes on your credit report, write to 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 give extra care to make sure the activity reported is correct.
Knowing the ways you can raise your FICO score, you can move toward becoming a homeowner. Know that when it's time 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 Scenic Hills Realty, the loan application process can be a stress-free experience so you, too, can become a homeowner.
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.