FICO - The First Step to Home Ownership
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet starts the home buying process. Without an acceptable credit score, buying a house is harder and, you could find yourself renting longer than you expected until your FICO score is acceptable.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. Most people traditionally have a score of 650, but scores are tiered from 300 to 850. 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 just that and often means you can't get credit. Some of the pieces in summing up your FICO score are:
- Payment History — How many months do you make late payments?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
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 a view of what type of borrower you'll be solely because of your credit history. You'll need a score of at least 740 to get an acceptable interest rate. If your score is lower, you can still qualify for a loan, but the interest paid over the life of the loan could be more than double that of an individual with a stronger credit score.
I'm used to working with all levels of FICO scores. Call me at 214.477.1658 and I can help you get on the right track to the home of your dreams.
How do you obtain a better score? Improving your FICO score takes time. It can be rare to make a significant stride change in your number with small changes, but your score can improve in a few years by monitoring your credit report and by using your credit wisely. The most important thing is to know your FICO score. You'll improve your credit score by using these helpful hints:
- Ensure that your credit history is correct. If you find incorrect items on your credit report, contact the bureau requesting 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 don't want to have 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 a smaller balance than to have all of your debt transferred to a single card.
- Apply for service station cards or store credit. For those who have no credit or less-than-stellar credit, store credit cards and gas credit cards are ways to get credit, increase your credit limits and keep up 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 steeper interest rate.
- Keep your cards active. 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, be sure to pay them off in no more than two or three payments.
- Stay on top of payments. Late payments kill 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 show that you're responsible enough to make payments to a lender.
Knowing the ways you can improve your credit score, you can move toward becoming a homeowner. Keep in mind that when it's time 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 Washburn Realty Group, the loan process is sure to go more smoothly so you, too, can become a homeowner.
Learn more about FICO scores at www.myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.
I won't judge you based on your FICO scores and can help you step into home ownership with the best lending insitution for you. E-mail me at Dan@WashburnRealtyGroup.com or call 214.477.1658 for additional information.