Raising Your FICO Score for Home Buying
The home buying process doesn't start with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process begins 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 back it up, you could end up renting longer than you expected in Prairieville until you improve your score.
The Fair Isaac Company bases your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with most people normally having a score of 600. 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 pieces in summing up your FICO score include:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- 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 — How many times has your credit history been accessed by someone other than you?
When you pull your credit report, you'll see 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.
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 a view of what type of borrower you'd 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. If your score is less than that, you can still qualify for a loan, but the interest accumulated over time could be more than double the amount of an individual with a stronger credit score.
Getting your credit in order 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? Building your FICO score takes time. It can be rare to make a significant stride change in your number with small changes, but your score can improve in a year or two 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 pointers:
- Pay on time. Late payments hurt your credit history. It's where people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to build up your credit this way, but it's the surest way to prove that you're able to make payments to a lender.
- Correct your credit report. If you find mistakes 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 give extra care to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you don't want to have one card that is at the maximum and have your remaining cards at a zero balance. It's better to have each of your cards at an even balance than to have the most of your debt taking up the balance one card.
- Store cards and gas cards. For those who have no credit or below average credit, retail credit cards and gas credit cards are ways to begin your credit history, increase your credit limits and have a solid payment history, which will raise your FICO score. You should always beware of charging a large balance for too long because these types of cards traditionally have a surprising interest rate.
- Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts stay active. But, pay them off in no more than two or three payments.
Now that you know more 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 it's time to apply for a loan to purchase a home, 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 process can be a stress-free experience so you, too, can become a homeowner.
Get more information by visiting 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.