Scoring Your FICO
Most people assume that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. The content 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 Farwell.
A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with most people normally having a score of 650. With the change in the economy, however, some borrowers have seen their score lowered after job loss, charged off credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the factors in summing up your FICO score are:
- Credit to Debt Ratio — How much do you owe versus your available credit?
- 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 — How many late payments have you made?
In reviewing your credit history, you'll find that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each bureau.
Lenders want to make sure that allowing you a loan isn't a risk for them. Your FICO score gives lenders a view of what type of borrower you'll be solely because of your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 700 or higher to get a satisfactory interest rate. You'll still qualify for a mortgage loan with a lower score, but the interest accumulated over time could be more than double that of someone having a better credit score.
We're used to working with all tiers of credit scores. 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 obtain a higher score? Improving your FICO score takes time. It can be hard to make a significant change in your number with quick fixes, but your score can improve in a year 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:
- Ensure that your credit history is correct. If you discover 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 pay extra attention to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't sound like a good idea. But, you steer clear of having one card that is maxed out and have the rest of your cards at a zero balance. It's better to have each of your cards at about less than 40% of their credit limit than to have the majority of your debt sitting on a single card.
- Apply for service station cards or retail credit. For those who have non-existent credit or below average credit, retail credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and keep up your payments, which will raise your credit. You must always avoid charging a high balance for more than a couple of months because these types of cards normally have a larger interest rate.
- Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards so that your accounts maintain an active status. But, make sure you pay them off in one or two payments.
- Keep up with payments. Your FICO score plummets with each account that goes to collections. It's where people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the most reliable way to show that you're able to make payments to a lender.
Knowing the methods you can use to raise your credit score, you're one step closer to becoming a homeowner. Remember that when you're ready to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid adverse effects on your credit score. With the help of J.B. Sudderth Realty, Inc., shopping for a mortgage can be a stress-free experience so you, too, can achieve home ownership.
Learn more about FICO scores at 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.