Ways to Improve Your FICO Score for Home Buying
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts and ends with your finances. To become a homeowner, you must consider your FICO score along with the type of lender for which you'll qualify in Fall River, Massachusetts.
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 the majority of people traditionally having a score of 600. Even though more people these days are experiencing job loss and delinquent credit cards, FICO scores aren't necessarily adjusted "on a curve." A low score is a low score and that often means you can't get a decent interest rate. Some of the pieces in calculating your FICO score include:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How many late payments have you made?
- 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?
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a problem. Your credit score gives lenders a view of what type of borrower you'll be based solely on your credit history. You'll need a score of at least 700 to get a decent interest rate. You'll still qualify for a mortgage loan with a lower score, but the interest accumulated over time could be more than double the amount of an individual with a near perfect credit score.
We're used to working with all levels of credit scores. Call us at (508) 646-4777 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 difficult to make a large-scale change in your FICO score with quick fixes, but your score can improve in a year or two 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:
- Use your credit. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards to make sure your accounts stay active. But, be sure to pay them off in one or two payments.
- Stay on top of payments. How often you're late with payments greatly affects your credit score. It's where people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to build up your credit this way, but it's the most reliable way to show that you're responsible enough to make payments to a bank.
- Correct your credit report. If you discover 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 don't want to have 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 a lower balance than to have all of your debt transferred to a single card.
- Apply for service station cards or store credit. 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 credit limits and stay on top of your payments, which will raise your FICO score. You must always avoid charging a high balance for more than a couple of months because these types of cards usually have a larger interest rate.
Now that you're better informed about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Keep in mind that when you're ready 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 E Z Home Search Real Estate Inc., shopping for a mortgage is sure to go more smoothly so you, too, can become a homeowner.
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.