Improving Your FICO Score for Home Ownership
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts with your finances. To propel your dreams of homeownership forward, you must consider your FICO score along with the type of loan for which you'll qualify in Newburgh, New York.
A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with most people traditionally having a score of 600. In recent years, however, some people have seen their score lowered as a result of unemployment, delinquent credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the factors in summing up your FICO score are:
- Payment History — Do you pay your bills on time ?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
When you pull your credit report, you'll find 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. Because of this, you have three scores, one for each scoring model.
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'd be solely because of your credit history. You'll need a score of at least 740 to get a acceptable interest rate. If your score is less than that, you can still qualify for a loan, but the interest accumulated in the long run could be more than double that of someone having a better FICO score.
Staying on top of your FICO score is the first step in purchasing a home. Call us at (845) 567-6789 and we can help you get on the right track to the home of your dreams.
There are plans to raise your score. Building your FICO score takes time. It can be difficult to make a significant change in your credit score with quick fixes, but your score can improve in a year by keeping tabs your credit report and by using credit extended to you to raise your score, instead of ruin it. The best way to do this is to know your FICO score. You'll improve your credit score by using these tips:
- Pay on time. Late payments hurt your credit score. It's one of the reasons people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to build up 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.
- Even out your debt. At first, this doesn't seem like a good idea. But, you want to avoid of having 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 an even balance than to have all of your debt taking up the balance one card.
- Apply for gas cards or retail credit. For those who have non-existent credit or below average credit, chain store credit cards and gas credit cards are ways to obtain credit, increase your spending limits and keep up your payments, which will raise your FICO score. You should always beware of charging a high balance for too long because these types of cards normally have a higher interest rate.
- Use your credit. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards to make sure your accounts stay active. But, be sure to pay them off in one or two payments.
Now that you're more informed about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. Keep in mind that when it's time 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 Countryman Real Estate Associates, shopping for a mortgage can be a stress-free experience so you, too, can achieve home ownership.
To learn more, visit myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports 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.