Tips on Raising Your FICO Score for Home Buying
The home buying process doesn't start with getting pre-approved by a lender or with choosing a real estate agent. The content of your wallet starts the home buying process. 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 Morristown.
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 range from 300 to 850. In recent years, however, some borrowers have seen their score drop by hundreds of points because of loss of employment, charged off credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the factors in calculating your FICO score include:
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus your available credit?
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 determine 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 ensure that giving you a loan is a safe move. Your FICO score gives lenders an insight into what type of borrower you'll be based solely on your credit history. You'll need a score of at least 740 to get a satisfactory interest rate. If your score is less than that, you can still qualify for a loan, but the interest accumulated in the long run could be more than double the amount of an individual with a stronger credit score.
Staying on top of your FICO score is the best way to ease into purchasing a home. Call us at (423) 581-8881 and we 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 difficult to make a significant stride 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 wisely using credit. The best way to do this is to know your FICO score. Here are some methods to improve your credit score:
- Correct your credit report. If you find mistakes on your credit report, contact 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 pay extra attention to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you want to avoid of having 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 an even balance than to have the majority of your debt taking up the balance one card.
- Apply for gas station cards or store credit. For those who have no credit or low credit, retail credit cards and gas credit cards are ways to start your credit history, increase your credit limits and stay on top of your payments, which will raise your credit. You should always beware of carrying a high balance for too long because these types of cards usually have a surprising interest rate.
- Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Pay on time. Late payments kill your credit history. 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 rebuild your credit this way, but it's the surest way to prove that you're able to make payments to a bank.
Now that you're better informed about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. Keep in mind that when it's time to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid adverse effects on your credit score. With the help of Re/Max Real Estate Ten, the loan application process is sure to go more smoothly so you, too, can achieve home ownership.
Get more information by visiting www.myFICO.com, Fair Isaac's informational site and review your credit history for free 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.
We won't judge you based on your credit history and can help you settle into home ownership with the best lending insitution for you. E-mail us at firstname.lastname@example.org or call (423) 581-8881 for more information.