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 starts with your finances. Without an above average credit score, purchasing a house is harder and, you could find yourself renting for another couple of years in Brevard County until you build up your score.
Your FICO score ranges from 300 to 850, with the majority of people traditionally having a score of 600. In recent years, however, some people have seen their score drop by hundreds of points after unemployment, closed credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the factors in reviewing your FICO score include:
- Credit Inquiries — Do you have too many open accounts?
- 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?
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. You have a credit score with all of the bureaus.
Lenders want to make sure that giving you a loan isn't a risk for them. Your FICO score gives lenders an insight into what type of borrower you'd be based solely on 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 an acceptable interest rate. You can get approved for a mortgage loan with a lower score, but the interest accrued over time could be more than double the amount of someone with 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 higher score, but how do you get there? Improving your FICO score takes time. It can be hard to make a significant change in your number with quick fixes, but your score can improve in a year by monitoring 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:
- Apply for gas cards or retail credit. 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 stay on top of your payments, which will raise your credit. You must always beware of holding a large balance for too long because these types of cards traditionally have a surprising interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts maintain an active status. But, be sure to pay them off in no more than two or three payments.
- Stay on top of payments. How often you're late with payments greatly affects 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 most reliable way to prove that you're responsible enough to make payments to a lender.
- Ensure that your credit history is correct. 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 at the limit and have the rest of your 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.
Now that you're more 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 home, you'll want to keep your credit inquiries within a two-week window to avoid a negative mark on your credit score. With the help of the Brevard Real Estate Team with RE/MAX Elite, LLC, the loan application process is sure to go more smoothly so you, too, can achieve home ownership.
To learn more, visit www.myFICO.com, Fair Isaac's informational site and review your credit history for free at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.
We won't judge you based on your credit history and can help you step into home ownership with the right mortgage lender for you. E-mail us at email@example.com
or call 321-543-5503 (Neal) 321-544-9237 (Zack) for additional information.