Ways to Improve Your FICO Score for Home Buying
You might think that the home buying process starts with getting pre-approved for a loan or with choosing a real estate agent. The content of your wallet starts the home buying process. Saving your money for a down payment is great, but if you lack an acceptable credit score to back it up, you could end up renting longer than you expected in Bronx, New York until you improve your score.
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 600. With the change in the economy, however, some people have seen their score drop by hundreds of points because of job loss, closed credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in calculating your FICO score are:
- 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 your available credit?
- Credit Inquiries — Do you have too many open accounts?
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 systems to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. As a result, you have three scores, one for each bureau.
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 FICO score gives lenders a view of what type of borrower you are based solely on your credit history. You'll need a score of at least 740 to get a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest paid in the long run could be more than double that of an individual with a higher credit score.
Staying on top of your FICO score is the first step in owning a home. Contact us and we can help you get on the right track to the home of your dreams.
How do you boost your credit score? Building your FICO score takes time. It can be difficult to make a significant stride change in your credit score with small changes, but your score can improve in a few years by monitoring your credit report and by using your credit wisely. The best way to do this is to know your FICO score. Here are some ways you can improve your credit score:
- Pay on time. How often you're late with payments greatly affects your credit score. It's where people who have recently experienced job loss see the biggest hit 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.
- Ensure that your credit history is correct. If you find incorrect items on your credit report, write to 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.
- Even out your debt. 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 your remaining cards at a zero balance. It's better to have each of your cards at about 25% of their credit limit than to have the majority of your debt transferred to a single card.
- Apply for gas station cards or store credit. For those who have non-existent credit or low credit, retail credit cards and gas credit cards are ways to obtain credit, increase your spending limits and stay on top of your payments, which will raise your credit. You must always avoid carrying a high balance for too long because these types of cards traditionally have a steeper interest rate.
- Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, be sure to use your cards so that your accounts maintain an active status. But, pay them off in no more than two or three payments.
Knowing the methods you can use to build up your credit score, you're one step closer to 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 lender applications within a two-week window to avoid a negative mark on your credit score. With the help of Go! Real Estate, Inc., shopping for a mortgage is sure to go more smoothly so you, too, can become a homeowner.
Learn more about FICO scores at 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.