Ways to Improve Your FICO Score for Home Buying
Most people assume 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 begins the home buying process. To realize your goal of owning a home, you must consider your FICO score along with the type of mortgage loan for which you'll qualify in Loveland, Colorado.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with the majority of people traditionally 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 just that and often means you can't get credit. Some of the factors in determining your FICO score are:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How often do you make late payments?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — Do you have too many open accounts?
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 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 each of the bureaus.
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 based solely on your credit history. You'll need a score of at least 740 to get a satisfactory interest rate. If your score is less than that, you can still qualify for a loan, but the interest accumulated over the life of the loan could be more than double the amount of someone with a better FICO score.
We're used to working with all tiers of FICO scores. Contact us and we can help you get on the right track to the home of your dreams.
You want a stronger score, but how do you get there? Building your FICO score takes time. It can be difficult to make a significant stride change in your credit score with small changes, 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 pointers:
- Even out your debt. At first, this doesn't seem like a good idea. But, you don't want to have 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 a smaller balance than to have the most of your debt taking up the balance a single card.
- Department store cards and gas station cards. For those who have non-existent credit or low credit, department store credit cards and gas credit cards are ways to establish your credit history, increase your credit limits and stay on top of your payments, which will raise your credit. You should always avoid holding a large balance for more than a couple of months because these types of cards usually have a surprisingly high 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 to make sure your accounts maintain an active status. But, be sure to pay them off in one or two payments.
- Keep up with payments. Late payments hurt 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 with payment history, but it's the most reliable way to prove that you're responsible enough to make payments to a bank.
- Correct your credit report. If you find incorrect items 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 pay extra attention to make sure the activity reported is correct.
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 house, 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 At Home Real Estate Company, the loan process is sure to go more smoothly so you, too, can become a homeowner.
Learn more about FICO scores at myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year 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.