Tips on Raising Your FICO Score for Home Buying
The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process begins with your finances. Without an above average FICO score, entering into a loan for a house is harder and, you could find yourself renting longer than you expected in Arcadia, Florida until your FICO score is acceptable.
The Fair Isaac Company bases your FICO score on the summary of your complete credit history. Most people usually have a score of 650, but scores are tiered from 300 to 850. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is just that and often means you can't get a decent interest rate. Some of the pieces in summing up your FICO score include:
- 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 — How often do you make late payments?
When you pull your credit report, you'll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models 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 each of the bureaus.
Lenders want to be positive that giving you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you are based solely on your credit history. You'll need a score of at least 700 to get a acceptable interest rate. If your score is less than that, you can still qualify for a loan, but the interest accumulated over time could be more than double the amount of an individual having a superior FICO score.
We're used to working with all levels of credit history. Contact us and we can help you get on the right track to the home of your dreams.
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 FICO score with small changes, but your score can improve in a few years by monitoring your credit report and by wisely using credit. The most important thing is to know your FICO score. Here are some methods to improve your credit score:
- Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts stay active. But, be sure to pay them off in one or two payments.
- Pay on time. Late payments kill your credit history. It's where people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to restore your credit with payment history, but it's the surest way to show that you're responsible enough to make payments to a bank.
- Ensure that your credit history is correct. If you discover 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 give extra care to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't sound like a good idea. But, you want to avoid of having one card that is holding the maximum and have the rest of your 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 majority of your debt transferred to a single card.
- Chain store cards and gas station cards. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and have a solid payment history, which will raise your credit. You should always avoid holding a high balance for too long because these types of cards more than likely have a steeper interest rate.
Now that you know more about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Know that when you're ready to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid damaging your credit score. With the help of The Williamson Group Realty, Inc., the loan application process can be a stress-free experience so you, too, can achieve home ownership.
To learn more, visit 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.