Tips on Improving 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 with your finances. To make your goal of homeownership realized, considering your credit score is a must along with the type of loan for which you'll qualify in Huntersville.
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 are tiered from 300 to 850. With the change in the economy, however, some people have seen their score drop by hundreds of points after underemployment, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the pieces in reviewing your FICO score include:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How often do you make late payments?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
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'll be solely because of your credit history. You'll need a score of at least 700 to get a decent interest rate. You can get approved for a loan with a lower score, but the interest accumulated in the long run could be more than double that of an individual with a better FICO score.
Improving your FICO is the best way to ease into owning a home. Contact us and we can help you get on the right track to the home of your dreams.
You want an improved score, but how do you get there? Building your FICO score takes time. It can be difficult to make a large-scale change in your number 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 most important thing is to know your FICO score. You'll improve your credit score by using these pointers:
- Don't let your cards get dusty. Whether you have older cards, or are just getting started with credit, be sure to use your cards so that your accounts stay active. But, make sure you pay them off in one or two payments.
- Pay on time. How often you're late with payments greatly affects your credit score. It's where people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to build up your credit this way, but it's the most reliable way to prove that you're responsible enough to make payments to a lender.
- Correct your credit report. If you discover incorrect items on your credit report, contact 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 sound 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 a smaller balance than to have all of your debt transferred to one card.
- Apply for service station cards or chain store credit. For those who have non-existent credit or below average credit, retail credit cards and gas credit cards are ways to establish your credit history, increase your spending limits and have a solid payment history, which will raise your credit. You must always beware of carrying a large balance for too long because these types of cards more than likely have a steeper interest rate.
Knowing the ways you can improve your FICO score, you can move toward becoming a homeowner. Remember that when it's time to apply for a loan to purchase a home, you'll want to keep your applications within a two-week window to avoid a negative mark on your credit score. With the help of Wilson Realty, the loan process can be a stress-free experience so you, too, can achieve home ownership.
Learn more about FICO scores at myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year 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.