Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins with your finances. Without an acceptable credit score, purchasing a house is more difficult and, you could find yourself renting for another couple of years in Salinas until your score improves.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 600, but scores are tiered from 300 to 850. With the change in the economy, however, some borrowers have seen their score drop by hundreds of points because of underemployment, closed credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in deciding your FICO score include:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How many times 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?
In reviewing your credit history, you'll discover 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. You have a credit score with all of the bureaus.
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 are based solely on your credit history. You'll need a score of at least 700 to get a decent interest rate. You can qualify for a mortgage with a lower score, but the interest paid over the life of the loan could be more than double that of someone having a better credit score.
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Staying on top of your FICO score is the first step in buying a home. Contact me and I can help you get on the right track to the home of your dreams.
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How do you boost your credit score? Building your FICO score takes time. It can be rare to make a significant stride change in your credit score with small changes, but your score can improve in a few years 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:
- Ensure that your credit history is correct. If you find incorrect items on your credit report, write to 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 give extra care to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you want to avoid of having 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 a lower balance than to have the most of your debt transferred to one card.
- Apply for service station cards or department store credit. For those who have non-existent credit or below average credit, retail credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and stay on top of your payments, which will raise your FICO score. You should always avoid holding a large balance for more than a couple of billing cycles because these types of cards traditionally have a steeper interest rate.
- Keep your cards in rotation. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts maintain an active status. But, pay them off in one or two payments.
- Keep up with payments. Delinquent payments drastically drop your credit score. It's one of the reasons 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 surest way to prove that you're responsible enough to make payments to a bank.
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Knowing the methods you can use to improve 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 applications within a two-week window to avoid adverse effects on your credit score. With the help of Bayshore Real Estate Services, the loan application process is sure to go more smoothly so you, too, can achieve home ownership.
To learn more, visit www.myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.
I won't judge you based on your credit and can help you settle into home ownership with the right lender for you. E-mail me at bayshoremonterey@redshift.com or call 8314842400 for additional information.