Home buyer's Guide to Better Credit
Most people assume that the home buying process starts with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process begins with your finances. To propel your dreams of homeownership forward, you must consider your FICO score along with the type of loan for which you'll qualify in Stuart, Florida.
A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with most people traditionally having a score of 650. In recent years, however, some people have seen their score lowered as a result of loss of employment, delinquent credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in calculating your FICO score are:
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How often do you make late payments?
- Credit to Debt Ratio — How much do you owe versus your available credit?
In reviewing your credit history, 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 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 of the bureaus.
Lenders want to make sure that allowing you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you are solely because of your credit history. You'll need a score of at least 740 to get a acceptable interest rate. If your score is lower, you can still qualify for a loan, but the interest accrued over the life of the loan could be more than double the amount of someone having a superior FICO score.
Getting your credit in order is the best way to ease into purchasing a home. Contact us and we can help you get on the right track to the home of your dreams.
How do you get a stronger score? Improving your FICO score takes time. It can be rare to make a significant stride change in your number with quick fixes, but your score can improve in a few years by monitoring 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. You'll improve your credit score by using these helpful hints:
- Pay on time. Your FICO score plummets with every account that goes to collections. It's where people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to build up your credit this way, but it's the surest way to prove that you're able to make payments to a lender.
- Correct your credit report. If you discover mistakes 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.
- 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 less than 40% of their credit limit than to have the most of your debt taking up the balance a single card.
- Apply for gas station cards or retail credit. For those who have non-existent credit or less-than-stellar credit, retail credit cards and gas credit cards are ways to improve credit, increase your spending limits and stay on top of your payments, which will raise your credit. You should always beware of maintaining a large balance for more than a couple of months because these types of cards usually have a steeper interest rate.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts maintain an active status. But, make sure you 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. 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 damaging your credit score. With the help of Premier Realty Group, Inc., shopping for a mortgage 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 once per year, for free, you can review all three of your credit reports 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.