How's Your FICO?
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 begins the home buying process. Without a reasonable credit score, entering into a loan for a house is more difficult and, you could find yourself renting for another couple of years in Covina until you improve your score.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with the majority of people traditionally having a score of 650. In recent years, however, some borrowers have seen their score drop dramatically as a result of job loss, charged off credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the factors in calculating your FICO score include:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How many months do you make late payments?
- 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 find 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. Because of this, 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 problem. Your FICO score gives lenders an insight into what type of borrower you'll be solely because of 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 paid in the long run could be more than double that of an individual with a better FICO score.
Staying on top of your FICO score is the first step in owning a home. Call us at (626) 608-7310 and we can help you get on the right track to the home of your dreams.
There are methods to increase your score. Building your FICO score takes time. It can be difficult to make a large-scale change in your FICO score with quick fixes, but your score can improve in a year or two 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. Here are some methods to improve your credit score:
- Apply for gas station cards or department store credit. For those who have no credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to get credit, increase your credit limits and have a solid payment history, which will raise your credit. You should always beware of carrying a high balance for too long because these types of cards traditionally have a higher 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 stay active. But, be sure to pay them off in one or two payments.
- Pay on time. Delinquent payments drastically lower 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 build up your credit with payment history, but it's the surest way to prove that you're able to make payments to a lender.
- Ensure that your credit history is correct. If you discover 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 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 all of your debt sitting on one card.
Knowing the methods you can use to improve your credit score, you can move toward becoming a homeowner. Keep in mind that when you're ready to apply for a loan to purchase a house, 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 In Home Realty, 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 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.