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. Saving your money for a down payment is great, but if you don't have an acceptable credit score to back it up, you could end up renting longer than you expected in Pacific Grove until your score improves.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people usually have a score of 650, but scores are tiered from 300 to 850. Since we've experienced an economic downturn, however, some people have seen their score drop by hundreds of points because of job loss, charged off credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in deciding your FICO score include:
- 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?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
In reviewing your credit history, you'll discover 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 of the bureaus.
Lenders want to make sure that giving you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you'll be based solely on your credit history. You'll need a score of at least 700 to get a acceptable 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 that of an individual having a better FICO score.
We're used to working with all tiers of credit scores. Call us at (831) 238-1984 and we can help you get on the right track to the home of your dreams.
There are plans to raise your score. Building your FICO score takes time. It can be hard to make a significant change in your FICO score with small changes, but your score can improve in a year or two 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. Here are some ways you can improve your credit score:
- Stay on top of payments. Payment history is a huge factor in your FICO 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 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 find mistakes 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 seem like a good idea. But, you want to avoid of having one card that is at the maximum and have your remaining cards at a zero balance. It's better to have each of your cards at about 20% of their credit limit than to have the majority of your debt taking up the balance one card.
- Retail cards and gas station cards. For those who have no credit or low credit, chain store credit cards and gas credit cards are ways to establish your credit history, increase your spending limits and have a solid payment history, which will raise your FICO score. You must always beware of carrying a high balance for more than a couple of billing cycles because these types of cards usually have a surprisingly high interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, be sure to use your cards so that your accounts stay active. But, pay them off in no more than two or three payments.
Knowing the methods you can use to raise your FICO score, you can move toward becoming a homeowner. Keep in mind that when you're ready 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 Sothebys International Realty, the loan application process is sure to go more smoothly so you, too, can become a homeowner.
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.