How's Your Credit?

Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins with your finances. To realize your goal of owning a home, you must consider your FICO score along with the type of lender for which you'll qualify in Farwell, Texas.

The Fair Isaac Company bases your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with most people traditionally having a score of 650. Even though more people these days are experiencing job loss and delinquent credit cards, 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 extended to you via a mortgage loan. Some of the factors in determining 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 loans and credit cards?
• Payment History — How many times do you make late payments?

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. You have a credit score with all three of the bureaus.

Lenders want to ensure that giving you a loan isn't a risk for them. Your credit score gives lenders an insight into what type of borrower you are based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher to get a satisfactory interest rate. You can get approved for a mortgage loan with a lower score, but the interest accumulated in the long run could be more than double that of someone with a better credit score.

Improving your FICO is the first step in purchasing a home. Call us at 806-481-3288 and we can help you get on the right track to the home of your dreams.

How do you get a stronger score? Building your FICO score takes time. It can be difficult to make a significant change in your number with small changes, but your score can improve in a year or two by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:

• Stay on top of payments. Late payments kill your credit history. 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 rebuild your credit with payment history, but it's the most reliable way to prove that you're able to make payments to a bank.
• Correct your credit report. If you find mistakes on your credit report, contact 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.
• Spread your debt around. At first, this doesn't sound 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 about 30% of their credit limit than to have the most of your debt taking up the balance a single card.
• Apply for gas station cards or chain store credit. For those who have non-existent credit or low credit, chain store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and stay on top of your payments, which will raise your FICO score. You should always beware of maintaining a high balance for too long because these types of cards usually have a surprising 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 stay active. But, make sure you pay them off in no more than two or three payments.

Now that you're more 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 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 adverse effects on your credit score. With the help of J.B. Sudderth Realty, Inc., the loan process is sure to go more smoothly so you, too, can become a homeowner.

To learn more, visit 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.