Increasing Your FICO Score for Home Buying
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts with your finances. To realize your goal of owning a home, considering your credit score is a must along with the type of loan for which you'll qualify in DuBois.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. The score ranges from 300 to 850, with most people traditionally having a score of 650. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is a low score and that often means you can't get a loan. Some of the factors in determining your FICO score include:
- 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 — Do you pay your bills on time every month?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
When you pull your credit report, you'll see 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 each of the bureaus.
Lenders want to make sure that allowing you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you'd be based solely on your credit history. You'll need a score of at least 700 to get a satisfactory interest rate. You'll still get approved for a loan with a lower score, but the interest paid in the long run could be more than double that of an individual having a superior credit score.
We're used to working with all tiers of FICO scores. Contact us and we can help you get on the right track to the home of your dreams.
You want a better score, but how do you get it? Improving your FICO score takes time. It can be difficult to make a significant change in your credit score with quick fixes, but your score can improve in a few years 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:
- 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 at the maximum and have your remaining 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 one card.
- Store cards and service station cards. For those who have no credit or below average credit, retail credit cards and gas credit cards are ways to repair credit, increase your credit limits and have a solid payment history, which will raise your FICO score. You should always avoid carrying a high balance for too long because these types of cards more than likely have a surprising interest rate.
- Use your credit. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts maintain an active status. But, pay them off in one or two payments.
- Keep up with payments. Delinquent payments instantly drop your credit score. It's one of the reasons people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit with payment history, but it's the most reliable way to show that you're responsible enough to make payments to a bank.
- Ensure that your credit history is correct. If you discover mistakes on your credit report, write to 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.
Knowing the ways you can improve your credit score, you're one step closer to becoming a homeowner. Know that when it's time to apply for a loan to purchase a home, you'll want to keep your lender applications within a two-week window to avoid damaging your credit score. With the help of Hoffer Realty Associates, 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 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.