Raising Your FICO Score for Home Ownership
The home buying process doesn't start with getting pre-approved for a loan 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, Pennsylvania.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with most people traditionally having a score of 650. In recent years, however, some borrowers have seen their score drop by hundreds of points as a result of underemployment, closed credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in determining your FICO score include:
- 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?
When you pull your credit report, you'll discover 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. You have a credit score with all three of the bureaus.
Lenders want to ensure that allowing you a loan isn't a risk for them. Your FICO score gives lenders an insight into 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 acceptable interest rate. You can get approved for a loan with a lower score, but the interest accrued over time could be more than double the amount of someone having a higher FICO score.
Improving your credit is the best way to ease into owning a home. Call us at 8143712100 and we can help you get on the right track to the home of your dreams.
How do you obtain a stronger score? Improving your FICO score takes time. It can be difficult to make a large-scale change in your credit score with small changes, but your score can improve in a few years by keeping tabs 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 tips:
- Ensure that your credit history is correct. If you find mistakes 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 want to avoid of having one card that is at the limit 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 all of your debt sitting on one card.
- Retail cards and gas cards. For those who have no credit or below average credit, store credit cards and gas credit cards are ways to start your credit history, increase your spending limits and keep up your payments, which will raise your FICO score. You must always beware of holding a large balance for too long because these types of cards traditionally have a steeper interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts maintain an active status. But, make sure you pay them off in one or two payments.
- Pay on time. How often you're late with payments greatly affects your credit score. It's one of the reasons people who have recently experienced job loss 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 prove that you're able to make payments to a lender.
Now that you know more about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. Know that when you're ready to apply for a loan to purchase a home, you'll want to keep your applications within a two-week window to avoid damaging 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.
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.