Tips on 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 begins and ends with your finances. Saving your money for a down payment is great, but if you lack an acceptable credit score to reinforce it, you could find yourself renting for another couple of years in Muskogee, Oklahoma until your score improves.
The Fair Isaac Company bases your FICO score on the summary of your total credit history. Most people usually have a score of 600, but scores range from 300 to 850. With the change in the economy, however, some people have seen their score drop dramatically because of underemployment, delinquent credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in reviewing 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 how much credit you have available?
- 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 systems to determine 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 scoring model.
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 credit score gives lenders an insight into what type of borrower you are solely because of your credit history. You'll need a score of at least 700 to get a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest accumulated in the long run could be more than double that of someone having a better credit score.
We're used to working with all tiers of credit scores. Contact us and we can help you get on the right track to the home of your dreams.
There are plans to improve your score. Improving your FICO score takes time. It can be hard to make a significant change in your number with small changes, but your score can improve in a year by monitoring 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:
- Keep up with payments. Payment history is a big factor in your FICO 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 restore your credit this way, but it's the most reliable way to show that you're able to make payments to a bank.
- Ensure that your credit history is correct. If you discover 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 give extra care to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't seem like a good idea. But, you don't want to have one card that is at the maximum and have the rest of your cards at a zero balance. It's better to have each of your cards at about 20% of their credit limit than to have the bulk of your debt transferred to one card.
- Apply for gas station cards or store credit. For those who have no credit or less-than-stellar credit, store 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 should always beware of carrying a large balance for more than a couple of months because these types of cards traditionally have a larger interest rate.
- Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts stay active. But, pay them off in no more than two or three payments.
Knowing the ways you can build up your FICO score, you can move toward becoming a homeowner. Know 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 a negative mark on your credit score. With the help of Leslie Scott Realty, LLC, the loan process can be a stress-free experience 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.