Improving Your FICO Score for Home buyers
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts and ends with your finances. Without an above average credit score, purchasing a house is more difficult and, you could find yourself renting longer than you expected in Stuart, Florida until your FICO score is acceptable.
A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. The score ranges from 300 to 850, with the majority of people normally having a score of 600. With the change in the economy, however, some people have seen their score lowered after underemployment, delinquent credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in summing up your FICO score are:
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — Do you pay your bills on time ?
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 an insight into what type of borrower you'd be solely because of your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher to get a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest accrued over time could be more than double the amount of someone having a superior credit score.
We're used to working with all levels of FICO scores. Contact us and we can help you get on the right track to the home of your dreams.
How do you obtain a stronger score? Improving your FICO score takes time. It can be rare to make a large-scale change in your number with quick fixes, but your score can improve in a few years 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:
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards so that your accounts stay active. But, be sure to pay them off in one or two payments.
- Keep up with payments. Delinquent payments drastically drop your credit score. It's where people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the most reliable way to prove that you're responsible enough to make payments to a lender.
- Ensure that your credit history is correct. If you find 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.
- 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 holding the maximum 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 most of your debt taking up the balance one card.
- Retail cards and service station cards. For those who have no credit or below average credit, retail credit cards and gas credit cards are ways to repair credit, increase your credit limits and keep up your payments, which will raise your credit. You should always avoid keeping a large balance for more than a couple of billing cycles because these types of cards normally have a steeper interest rate.
Knowing the ways you can raise your FICO score, you're one step closer to becoming a homeowner. Know 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 adverse effects on your credit score. With the help of Premier Realty Group, Inc., the loan application process is sure to go more smoothly so you, too, can achieve home ownership.
Learn more about FICO scores at 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.