Scoring Your Credit
Choosing a lender isn't the first step in becoming a homeowner. The quality of your wallet begins the home buying process. Without a reasonable credit score, entering into a loan for a house is more difficult and, you could find yourself renting longer than you expected in Loveland until your FICO score is acceptable.
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 600, but scores range from 300 to 850. In recent years, however, some people have seen their score lowered after underemployment, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the pieces in summing up your FICO score are:
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- 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?
- Payment History — Do you pay your bills on time ?
When you pull your credit report, 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 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 three 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 FICO score gives lenders an insight into what type of borrower you are solely because of your credit history. You'll need a score of at least 700 to get a acceptable interest rate. You can get approved for a mortgage with a lower score, but the interest paid over the life of the loan could be more than double that of someone having a higher credit score.
Improving your FICO is the first step in buying a home. Contact us and we can help you get on the right track to the home of your dreams.
You want an improved score, but how do you get it? Building your FICO score takes time. It can be rare to make a significant stride change in your credit score with small changes, but your score can improve in a year by monitoring your credit report and by using your credit wisely. The best way to do this is to know your FICO score. Here are some methods to improve your credit score:
- Stay on top of payments. Delinquent payments drastically lower your credit score. It's one of the reasons people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to restore your credit this way, but it's the surest way to prove that you're able to make payments to a bank.
- Correct your credit report. If you discover 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 give extra care to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't sound like a good idea. But, you want to avoid 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 a smaller balance than to have the most of your debt transferred to one card.
- Retail cards and gas station cards. For those who have no credit or below average credit, retail credit cards and gas credit cards are ways to repair credit, increase your spending limits and stay on top of your payments, which will raise your FICO score. You should always avoid keeping a large balance for too long because these types of cards traditionally have a higher interest rate.
- Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, 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.
Now that you're better 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 applications 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 application process is sure to go more smoothly so you, too, can achieve home ownership.
To learn more, visit 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.