Ways to Raise Your FICO Score for Home Buying
You might think that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. The quality of your wallet starts the home buying process. To make your goal of homeownership realized, you must consider your FICO score along with the type of lender for which you'll qualify in Newburgh.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people traditionally 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 credit extended to you in the form of a mortgage loan. Some of the factors in deciding your FICO score include:
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How many late payments have you made?
In reviewing your credit history, you'll see that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to determine 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 allowing you a loan is a safe move. Your FICO score gives lenders an insight into what type of borrower you'll be solely because of your credit history. You'll need a score of at least 700 to get a acceptable interest rate. If your score is lower, you can still qualify for a loan, but the interest paid in the long run could be more than double that of an individual having a superior credit score.
Getting your credit in order is the best way to ease into owning a home. Contact us and we can help you get on the right track to the home of your dreams.
There are ways to boost your score. Improving your FICO score takes time. It can be rare to make a large-scale change in your FICO score with quick fixes, but your score can improve in a few years by monitoring your credit report and by using your credit wisely. The best way to do this is to know your FICO score. You'll improve your credit score by using these pointers:
- Department store cards and gas cards. For those who have non-existent credit or low credit, retail 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 credit. You must always beware of maintaining a large balance for more than a couple of months because these types of cards more than likely have a higher interest rate.
- Keep your cards in rotation. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards so that your accounts stay active. But, pay them off in no more than two or three payments.
- Pay on time. Payment history is a huge 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 build up 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 discover 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 steer clear of having one card that is at the limit and have your remaining cards at a zero balance. It's better to have each of your cards at about 25% of their credit limit than to have the bulk of your debt sitting on one card.
Knowing the ways you can raise your FICO score, you're one step closer to becoming a homeowner. Remember 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 adverse effects on your credit score. With the help of Countryman Real Estate Associates, shopping for a mortgage 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 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.