Scoring Your FICO
You might think that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process starts with your finances. To make your goal of homeownership realized, you must consider your FICO score along with the type of lender for which you'll qualify in DuBois.
A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 650, but scores are tiered from 300 to 850. In recent years, however, some people have seen their score lowered after underemployment, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in summing up your FICO score include:
- 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 — 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?
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a risk. Your credit score gives lenders an insight into what type of borrower you'd be solely because of your credit history. You'll need a score of at least 700 to get a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest accrued over time could be more than double the amount of someone having a better credit 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.
How do you get a higher score? Building your FICO score takes time. It can be rare to make a significant stride change in your FICO score with quick fixes, but your score can improve in a year 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. You'll improve your credit score by using these pointers:
- Ensure that your credit history is correct. If you discover 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 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 don't want to have one card that is at the limit 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 bulk of your debt taking up the balance one card.
- Chain store cards and service station cards. For those who have no credit or low credit, retail credit cards and gas credit cards are ways to begin your credit history, increase your credit limits and keep up your payments, which will raise your credit. You should always beware of maintaining a high balance for more than a couple of billing cycles because these types of cards traditionally have a larger interest rate.
- Keep your cards active. Whether you have older cards, or are just getting started with credit, 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. How often you're late with payments greatly affects your credit score. 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 this way, but it's the surest way to show that you're responsible enough to make payments to a lender.
Knowing the methods you can use to raise your credit score, you can move toward becoming a homeowner. Know 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 adverse effects on your credit score. With the help of Hoffer Realty Associates, 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 once per year, for free, you can review all three of your credit reports 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.