How's Your Score?
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins with your finances. Without a reasonable FICO score, purchasing a house is more difficult and, you could end up renting for another couple of years in Farwell, Texas until your FICO score is acceptable.
The Fair Isaac Company bases 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 a low score and that often means you can't get credit. Some of the factors in calculating your FICO score include:
- Payment History — How many late payments have you made?
- 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 credit cards and loans?
Lenders want to ensure that giving you a loan isn't a risk for them. 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 accrued in the long run could be more than double that of someone having a better FICO 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.
You want a better score, but how do you get it? Improving your FICO score takes time. It can be hard to make a large-scale change in your FICO score with quick fixes, but your score can improve in a few years by keeping tabs 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 helpful hints:
- Pay on time. Your credit score plummets with every account that goes to collections. 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 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 bank.
- Ensure that your credit history is correct. 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 pay extra attention to make sure the activity reported is correct.
- Spread your debt around. 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 an even balance than to have the majority of your debt taking up the balance a single card.
- Store 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 get credit, increase your spending limits and keep up your payments, which will raise your FICO score. You should always beware of carrying a large balance for too long because these types of cards more than likely have a steeper interest rate.
- Don't let your cards get dusty. 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 no more than two or three payments.
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. Keep in mind that when you're ready to apply for a loan to purchase a house, you'll want to keep your applications within a two-week window to avoid damaging your credit score. With the help of J.B. Sudderth Realty, Inc., the loan application process is sure to go more smoothly 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.