How's Your Credit?
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins with your finances. To propel your dreams of homeownership forward, considering your credit score is a must along with the type of loan for which you'll qualify in Prairieville, Louisiana.
A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. The score ranges from 300 to 850, with the majority of people normally 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 just that and often means you can't get credit. Some of the pieces in summing up your FICO score include:
- 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 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 bureau.
Lenders want to ensure that giving you a loan is a safe move. Your credit score gives lenders a view of what type of borrower you'll 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 decent interest rate. You can qualify for a loan with a lower score, but the interest accrued in the long run could be more than double that of someone having a higher 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? Building your FICO score takes time. It can be rare to make a significant stride change in your credit score with small changes, but your score can improve in a few years by monitoring your credit report and by wisely using credit. The best way to do this is to know your FICO score. Here are some ways you can improve your credit score:
- Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Stay on top of payments. Delinquent payments drastically drop your credit 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 restore your credit this way, but it's the surest way to prove that you're responsible enough to make payments to a bank.
- Correct your credit report. If you find mistakes on your credit report, write to 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 sound like a good idea. But, you don't want to have 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 the most of your debt sitting on one card.
- Apply for service station cards or store credit. For those who have non-existent credit or below average credit, chain store credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and have a solid payment history, which will raise your FICO score. You must always avoid carrying a large balance for more than a couple of billing cycles because these types of cards traditionally have a surprising interest rate.
Knowing the methods you can use to build up your FICO score, you can move toward becoming a homeowner. Keep in mind that when you're ready to apply for a loan to purchase a house, you'll want to keep your applications within a two-week window to avoid adverse effects on your credit score. With the help of Weichert, Realtors - Villar and Company, the loan application 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 you can review all of your credit reports for free each year 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.