Ways to Increase 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. The quality of your wallet begins the home buying process. To become a homeowner, considering your credit score is a must along with the type of mortgage loan for which you'll qualify in Newburgh, New York.
The Fair Isaac Company bases your FICO score on the summary of your total credit history. Most people traditionally have a score of 600, but scores range from 300 to 850. In recent years, however, some borrowers have seen their score lowered as a result of unemployment, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in deciding your FICO score include:
- 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?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a risk. Your credit score gives lenders a view of what type of borrower you'd be based solely on your credit history. You'll need a score of at least 740 to get a acceptable interest rate. You can get approved for a mortgage loan with a lower score, but the interest paid over the life of the loan could be more than double that of someone with a better FICO score.
Staying on top of your FICO score 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? Improving your FICO score takes time. It can be rare to make a significant change in your FICO score with small changes, but your score can improve in a year by monitoring your credit report and by wisely using credit. The best way to do this is to know your FICO score. You'll improve your credit score by using these helpful hints:
- Ensure that your credit history is correct. If you discover incorrect items on your credit report, contact 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 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 steer clear of having one card that is at the maximum and have the rest of your cards at a zero balance. It's better to have each of your cards at about 30% of their credit limit than to have the bulk of your debt sitting on a single card.
- Apply for gas station cards or chain store credit. For those who have no credit or less-than-stellar credit, store credit cards and gas credit cards are ways to improve credit, increase your credit limits and have a solid payment history, which will raise your credit. You must always avoid maintaining a large balance for more than a couple of months because these types of cards usually have a steeper interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts maintain an active status. But, be sure to pay them off in one or two payments.
- Pay on time. Your FICO score plummets with every account that goes to collections. It's where people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit with payment history, but it's the surest way to prove that you're able to make payments to a lender.
Now that you're better 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. Remember 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 Countryman Real Estate Associates, shopping for a mortgage can be a stress-free experience so you, too, can achieve home ownership.
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.